Ok, I figured it out and can now reproduce. This is very difficult to diagnose, because there are no tell-tale hints in the Theater View customization screenshots to indicate why it doesn't work. In fact, it is quite hidden and a challenge for any user to figure out.
You created your view using Library Item From Standard View, and selected the Video\Genre, Year, People, Events view. This is what has created those extra drill-down categories. Remove the "movies" item, and instead, create a new simple Library Item and nest it under Christmas, and call it Movies. Now apply your rules to that item.
@Matt - this is an area that could use some improvement. A Library Item from Standard View immediately below a Secondary Roller loses its visual signature in Options. There is no way to identify and distinguish one of these from a standard Library Item, but the behavior is quite different and confounding. EDIT: see my reply below.
