Could you try with the development version (1.2.4.1)? This should avoid the bug mentioned above (conflict with taxonomies which translations are not activated).
http://downloads.wordpress.org/plugin/polylang.zip
However I still believe (after looking back at the core code) that the url like: /cpt_slug/tax_slug/some_term/ are not supported by default by WordPress (only /tax_slug/some_term/ is supported). These kind of urls may be supported by custom rewrite rules (or by a plugin which implement them).
The utility of 'with_front' parameter is when you choose a permalink structure like /blog/%postname%/
If 'with_front' is set to false your taxonomy url will be /tax_slug/some_term/ instead of /blog/tax_slug/some_term/ if it is set to true (default). If you chose /%postname%/ then 'with_front' has of course no effect.
I did not experiment but I believe that choosing /blog/%postname%/ as permalink structure if blog is also a post type slug or a taxonomy slug will likely break something.