Please I am having the same problem.
I followed the directions even with a fresh database with Employee Categories 
defined. It is only defining the hierarchy for the administrator, and nobody 
else, even though the administrator has a manager defined.

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https://bugs.launchpad.net/bugs/697574

Title:
  [PS] Wrong Employee's hierarchy report

Status in OpenERP Modules (addons):
  Invalid

Bug description:
  Install hr module in version 6 with demo data.

  * Human Resources > Human Resources > Employees
  * From the Employee's form, click on "Employee's hierarchy"

  => The employee hierarchy generated is not correct. It does not show
  the right hierarchy, i.e. Manager / Subordinates

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