The behavior you are describing is indeed the expected behavior when filtering tree (list) view kind of structures. If an item is passing the filtering criteria it and all its parents have to be expanded in order for the user to understand what happened. For example you can look at Expression Blend's project structure tree view filtering or the Solution Navigator (part of VS 2010 productivity power tools) filtering which illustrate this concept. We currently do not expose an API (via property for example) that will allow you to switch off this behavior. What we do have are methods that will allow you to expand/collapse all hierarchy items
What you have observed about auto-generation of columns and filters is also correct. We generate those based on your root level objects in order to avoid performances issues with walking down all your tree hierarchy up to the leaves.
Regarding your performance concerns you are absolutely right. We do plan to boost the performance in scenarios like yours in our upcoming releases.
All the best,
the Telerik team
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