that doesn't work as expected. Say you have Bob in two circles "Following" and "Never Displayed". You then go to the profile settings and choose not to display the circle "Never Displayed". You would think that Bob won't show up in thr list, but in fact, since Bob is still in the "Following" circle, he will still show up in the list.
This is an area where Facebook's lists is better at privacy than circles - the ability to exclude a group or individual from an item. Also, some set operations would be nice, but exclude is a must.