The settings to get this particular EPUB converted to MOBI with correct TOC are:
Code:
Convert - StructureDetection - Detect chapters: //h:h3
Convert - TOC - Level 1 TOCs: //h:h3
Convert - TOC - Force use of auto-generated TOC: checked
This works because the Chapter headings in the source epub are tagged as <h3>.
I think (but I'm not sure) that the original problem may arise from the fact that the source epub was created with Sigil and calibre is being used to convert it. I think (but again, not sure) the problem may be to do with how the constituent parts inside the epub are arranged by Sigil, which is slightly different to how calibre arranges the parts.
I think if the source epub had been created by calibre then my original settings in the earlier post would have worked. The settings in this post have gone back to first principles.
If you want to get to the bottom of the original problem then I think it would be best to raise a ticket here and attach a misbehaving epub. Kovid may then be able to give you a better idea of whether there are steps you can take to make sure that Sigil epubs convert perfectly to calibre mobis every time.
I'll keep looking, purely as a technical exercise for myself. If I come up with anything revolutionary I'll post here.