Contextual filter with hierarchical taxonomy terms
I remember working on the same type of issue while ago.

The point here is Drupal will store only the deepest taxonomy item you selected and not the whole taxonomy path.

I solved that by hooking the node_save to save the whole path of taxonomy, but I'm not sure that's the best approach.

The other approach would be to find a way with views to make a join with the higher hierarchy level, by using relationships.

Another load could be to look at better_exposed_filter or hierarchical_select

I hope it helps.

Cheers