I followed the instructions on Joomlacode, and observed the described behavior: Only children of category 1 are shown. I tried to change the order of the categories in the category manager to show children of category 2, but apparently the filter goes by ID, so changing order does nothing here.
Second try was to change category order in the module, but the order in which categories are selected makes no difference there.
Eventually I applied the patch. Now all articles of all child categories of selected categories appear.
I also tested with a category of the test data and more than one level. Looks good to me.
(closed by mistake, github is very confusing in the beginning)