VM do not offer static IPs on their residential service.
What they do offer is what they apparently call Sticky IPs. Basically, the way their system works is that when your modem requests a new IP, generally (unless there has been network maintenance or there is some other reason), you'll get the same one you just had.
They do this anyway.
The Use static IP address option on your router is there because the router is not designed specifically for Virgin. It is designed for general network use, When it is ticked, generally routers will not look on the network for an IP, but will use whichever one you enter (although it has to be a valid IP assigned by your ISP otherwise it will not work). As such, you should only use the option when you are directed to do so by your ISP and using the details they give you.
Depending on what you need the fixed IP for, a "Dynamic DNS" service (such as
http://www.dyndns.com/ ) may be of some help. You either need to have a small program running on your PC or have support built into your router, but they allow you to get a domain name which will point to your PC or router regardless of the IP it is given.