Hi,
The menu item looks fine.
So I checked the situation on your website and the filter seems to work fine.
It seems that your grief with it is that it's only displaying the products directly inside the category selected.
However, there is no setting to change that.
The category filter is only capable of that.
The "include sub categories" setting of the filter is for the display of the filter, which means that if you display the filter module on a products listing, then the filter will display only based on that first "category" setting and the "include sub categories" setting.
For what you want to do, I would recommend to approach the problem differently.
Instead of creating a category filter, I would recommend creating a "HikaShop content module" configured to display the categories in the sidebar position. Then, when clicking on a category of the module, it will display the products of the category clicked on, and since your menu item is configured to display all sub elements already, it will display the products of the sub categories.