Option “News in Tags & Categories” is basically a query modification fired when appropriate options are enabled, you’re viewing a category or post_tag archive and the main query is being displayed so it won’t work here.
The solution is either to modify the widget you mentioned or to modify the query again with less strict attributes.
Try this:
function df_modify_posts_query($query) {
if ( !is_admin() && empty($query->query_vars['suppress_filters']) ) {
if(($post_type = $query->get('post_type')) === '')
$post_type = array('post', 'news');
elseif(is_array($post_type))
{
$post_type[] = 'post';
$post_type[] = 'news';
}
else
$post_type = '';
$query->set('post_type', $post_type);
}
}
add_action('pre_get_posts','df_modify_posts_query');
If you experience problems try adding an action lower priority like that (because one query modification is already used in the plugin):
add_action('pre_get_posts','df_modify_posts_query', 20, 1);
That action filter is the key for solving the issue.