Showing child taxonomy terms if the parent is selected
Views doesn't have any built in way of creating an exposed filter like you explain, which means that you either need to create this functionality yourself for Views - which is very hard unless you have messed with Views APIs. The other option is to create this functionality in a custom module which a lot easier but also quite time consuming, so you will have to code it all in a custom module.

As a side note you should update your views install, currently up to date version is 3.3, This is quite important as 3.1 or 3.2 had a security fix, meaning you site has a known security vulnerability.