[curt.clifton]

I think that checkbox controls the project and context columns, not the group headers. Your screenshot shows this: the context column shows the parent and child, but the group does not. I'm also seeing the same behavior in 1.8, though I don't recall whether the full context hierarchy was shown in group headings in 1.7.5.

In project mode, grouped by folder, the headers do show nested folders.

Probably worth emailing the ninjas with a bug report/feature request that group headings show full hierarchy in context mode. (Grouping by project in context mode also gives groups without hierarchy.)