I have to agreee. I can see the concept and how tidy it can be, but it's too compressed and the differentiation between what's on the same level versus what is "above" or "below" the current level is where it all breaks down.
Offer a traditional tree and >90% my users gripes will have been addressed.

The folding/unfolding seems like a neat idea, but it confuses users and its re-formatting (ie "...") makes it less even less user-friendly.
A traditional tree gives a user a "whole of wiki" navigation .. and with collapsing, an option to narrow it. That's why the metaphor works. This "auto" nav is "too smart" and loses the user.

agree 100%

100% required. None of my users thinks the current nav tree is useful; they all think it is either buggy, or simply a bad idea. The UI should not confuse the user about where she is; and it should let her know where she can go next.