Thanks for the report. This is not a bug: the Navigation panel is designed to display the whole page tree of the wiki, starting from the wiki root. Its configuration only lets you exclude pages, not change the root of the tree. I'm closing this issue as Invalid. But, you are welcome to ask usage questions on the forum: https://forum.xwiki.org/
I believe Document Tree macro and the root parameter can help you achieve your needs though.
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