Nesting in smart folders (grouping by same database relation) by drag & dropping items is only possible if a group already exists. It is not possible to drag and drop one entity on top of another to start the nesting (as is the norm with tree structures).
Can you share a video of what you mean - not sure I get it.
Do you mean enabling a hierarchical self-relation to show up for a smart folder?
Or do you mean that you want a self-relation to be configured (created at the database level) by virtue of dragging an entity on top of another entity of the same type?
Or something else?
Here is a little gif to show the issue
Nesting test 3 under test 1 is fine, when test 4 is already there
But nesting 3 under 2, or 2 under 3 is impossible
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Has it just broken, or is it something that you just tried for the first time (and may have always been broken)?
It might have always been like this, I am not sure.
But it feels broken, since the nesting works in some situations.