In 1.9 PDFs are not displaying according to the settings.
See http://moodle.org/mod/forum/discuss.php?d=132906#p581622 for details.
In short, here are combinations and expectations:
1) Same window, navigation = No ..... PDF should be called directly and it isn't.
2) Same window, navigation = Yes, with Frame ..... PDF should appear in lower frame and it isn't.
3) Same window, navigation = Yes, without Frame .... PDF should appear embedded and it is (this is what happens for above two as well)
Apparently all that is needed is to remove $embedded = true but I'm not sure if that's 100% correct on all browsers. Can you review this and fix it?