Here is the response I got from PTC support:
"
Please refer to the attached “breadcrumbs.wmv” movie file & the below explanation from R&D as to why this is working as designed
> Clicking on "Products" would take you to the product listing page
> Clicking on "Golf_Cart" takes you to the last folder the you visited in the Golf_Cart container (in this scenario, that's the same one you are seeing so it stays put)
> Clicking on "Folders" takes you to the top-level folder, i.e., the Cabinet, of the Golf_Cart container;
> Clicking on "Design" takes you to the "Design" folder.
Clicking on folders does what you describe. Clicking on Products is supposed to go to the last folder (which is i the currently viewed one in this scenario. If there are more levels of folders you will see more levels in the breadcrumbs to take you up to various levels. In this example the user is only down one level and the folders link is then one level up.
These are working to spec. Closing the SPR as works to spec."