Does “show_option_all” in wp_list_categories do anything?

Isaac, I guess this derived from the wp_dropdown_categories() function which is supposed to work like a filter on a page — display posts from a certain category or display posts from all categories.

So wp_list_categories does the same but in a list of links instead of a dropdown menu, so it’s still intended to filter posts by category, meaning “All categories” will link to posts from all the available categories, which is actually “removing the filter”, thus pointing at your home page or blog page.

You can create a page template to display the posts in the fashion you like and link to that page manually, disabling show_option_all in your function call.