If you didn't understand that explanation, then I'll expand it a bit. This is still a bit simplified, but anyway.
The ISO levels 100-1600 are achieved by changing the amplification when reading the data from the CMOS sensor.
When you use expansion modes, in this case H, which is equivalent to ISO 3200, the camera actually exposes according to ISO 1600, then just multiply by two. This reduces the range from the sensor, effectively making the 14-bit sensor in the 40D a 13-bit instead.
So there's a quality loss from a different reason, and that's why Canon makes you think once more, before you can use it.