Ok, I duplicated the first chapter name and renamed it "Chapters".
I then moved all the chapters titles listed on the TOC Editor screen onto this newly created level1 TOC entry (Chapters) thus creating level2 TOC entries for all those chapters.
I clicked Save and it works!
Try to do the same and compare to the one I've attached below.
Oh, one more change I made was to delete the empty paragraph block [<p> </p>
] in "content0001.xhtml" so that the cover image displayed better in (windows) ADE.