Should the initial selected subfolder in the 'Add an asset' dialog be the Default Upload Location?
The Default Upload Location setting only applies to drag-n-drop uploads, as well as front-end uploads if you are creating your own entry form with a &lt;input type="file"/&gt; input.

If you want to force files to be placed in a {slug} subfolder, you should check the "Restrict uploads to a single folder" checkbox in your Assets field's settings.