I think I have been having the same problem, I think.
Here's the path my document takes. (Working with calibre on a Mac.)
Word > html on desktop
>add to calibre
>convert to Mobi
I managed to set up a multi-level TOC that displays correctly
within the Mobi ebook when viewed on the Kindle desktop app for Mac, but the TOC that the app itself displays
outside the ebook (when you click the app's TOC icon) does not display the multiple levels.
The TOC has 2 levels. For level one, I used the XPath expression //h:h1. For level 2, I used the XPath expression//h:h2.
Below is a jpg of a dummy version. Note that in the Kindle TOC (left side) it seems as though the chapters in "Story Two" are part of "Story One".
My question: Can calibre be configured so that Kindle displays the indented chapters, or should I just scrap the levels?