So perhaps what we're getting at is that there are three different behaviours of inherited taxonomies:

1. hosts in child taxonomies are visible when you're in the context of the parent
2. taxonomix resources in the parent, current or child taxonomies are visible from all ancestry contexts
3. when creating a new host, only taxonomix resources in the same or parent taxonomies are visible

Now to analyse them...

* (1) makes sense - it's intuitive, as you said below
* The parent bit of (3) makes sense, you assume that resources (especially domains) can filter down to all taxonomies below the one you assign it to.
* The child bit of (2) follows from (1), so that makes sense.  If I'm browsing domains in Israel, I expect to see tlv.redhat.com.
* The parent bit of (2) follows from (3), since you're able to create hosts with them, you should be able to see them too.

So the oddity is that although I can see resources in child taxonomies while in the context of a parent, I'm not able to use them on the host creation form unless I'm in within that child taxonomy.