For some spatial operations that need more than one input (such as Cost Weighted Distance), the analysis extent setting Union of inputs is observed if the Distance to input is feature data. If the Distance to input is a raster, the extent setting is ignored and Intersection of inputs is always used as the extent for the result. This is a known issue with ArcGIS Spatial Analyst 8.1.
This problem is addressed in ArcGIS 8.1 Service Pack 1. See the Related Information section to download this pack.