Removed and re-setup gmail account with maildir format. Now toplevel2 label placed on message in Inbox causes a new email file in folder toplevel2's cur directory. So in comment 2 above where I said, >Mbox also won't make a difference with the issue you have raised in this bug I was wrong. Correct behavior only occurs for mbox, not for maildir.
Bug 1554529 Comment 10 Edit History
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Removed and re-setup gmail account with maildir format. Now toplevel2 label placed on message in Inbox causes a new email file in folder toplevel2's cur directory. So in comment 2 above where I said, >Mbox also won't make a difference with the issue you have raised in this bug I was wrong. Correct behavior only occurs for mbox, not for maildir. Edit: I should also mention that the email is imap fetched via network into toplevel2/cur and not just copied there with maildir format in use.