The program in The Saboteurs install directory, which allows you to change graphic setting(VideoSetup.exe), offers me Refresh Rate of 120Hz, but if I choose it the entire game reverts back to "default settings". The highest I can go is 60Hz, that's when the other settings(resolution etc.) still work. Is this intentional or a bug?

I just checked it, I'm having the same issue. Seems to be a bug.
But I think the game is capped to 60fps anyways, so it's fine running at 60hz. :)