Yes, this is how Hide subtags notes is currently implemented: One child tag excludes a note from being viewed by the parent tag (I see this happening also for levels > 2). In our minds, this specific feature is for people who want tags to behave more like folders, so we applied a rule that forbids notes to appear on both the father and the son.
Why do you want this preview option and one note to appear in two places in the tags hierarchy? Or, in other terms, what’s your use case for this?