I did a video to show the actual behavior of S1 when I use pack folders with audio tracks and with multitrack VST instruments.
There's only one arrange track so the other mixer channels for that instrument don't get "hidden" in the mixer. If you check Link Expand/Collapse of Folder tracks with Show/Hide it only folders up channels where there associated arrange tracks.
I think it's a very good idea to have the option of to "hide/show tracks" using pack folder, working with multitrack instrument tracks like S1 does with audio tracks.
I think this is the right and intuitive behavior.