Category Levels of Display not working?

In category widget if I select “Always display child categories” it only shows the bottom level category. If I uncheck that it only shows the current top level categories in the current category I’m in.

The “Levels to Display” option doesn’t seem to have any affect.

If in the current category structure such as:
Dogs
– Boxer
– – Brindle
– – – Reverse
– Rottweiler

If I set Levels of Display I should be able to show just a certain depth such as:

Dogs
– Boxer
– – Brindle
– Rottweiler

But can’t seem to do that. Am I missing something?