Sure, but I've experienced the same thing when viewing a steady light at night without any other cues to let me know the distance. We judge distances (at least those greater than a few feet where binocular vision plays a role) by having an estimate of how large or bright the object is. Lights vary greatly in brightness, so unless we already know this particular light that doesn't help much. And the light by itself is too small to use that to gauge the distance. What does help is if the light is bright and close enough to illuminate parts of the bike enough to be seen - like the seat, rack, or rear wheel. Then we use our knowledge of the size of a normal bike to get a good estimate of the distance. But that's usually only when we are already quite close to the cyclist.

Just seeing an isolated light up ahead of us does not let us make a good estimate of the distance regardless of whether it's flashing or steady. But as long as the light gets noticed, then the following motorist is likely to pay it some more attention as he gets closer. Eventually he'll get some context, such as seeing parts of the cyclist or bike, that allows a good distance estimate.