LV BE (Before Events) had the panel and diagram behaving as asynchronously as possible WRT one another. A control periodically handled UI events from the user and dropped the value into its terminal. Independently, the diagram takes the current value when it is needed and does its work. There is no synchronization between when the UI event is handled, when the value in the terminal changes, and when the diagram reads it. It is often a very simple way of writing your code and mimics how most hardware works. So why do events?
The primary reason for the events feature is to allow synchronization between the UI and the diagram. First off, the diagram gets notification of a value change. It is guaranteed not to miss user changes or to burn up the CPU looking for them. In addition to the notification, the diagram gets a chance to respond, to affect the rest of the UI, before the rest of the user input is evaluated. Maybe this part needs an example.
Lets look at polled radio buttons. In theory, your diagram code polls fast enough to see each change in the radio buttons so that it can make sure that the previous button is set to FALSE. But when the user is faster than the diagram and presses multiple buttons, what order did they press them in? There has to be a fixup step to break the tie and pop out all but one button to FALSE regardless of the order the user clicked them.
With events, when the user clicks on a button, the panel is locked and will not process the next user click until the diagram finishes. This allows the diagram to see the button changes one at a time in the same order as the user presses.
Another example, perhaps a better one, is a panel with three action buttons: Save, Acquire, and Quit. The order that the presses are responded to is important, so the polling diagram has to "guess" whether to Save and then Acquire or Acquire, then Save. The Event Structure knows the order and the code in it is synchronized with the UI allowing for a better, more friendly UI.
Getting back on topic, the event structure introduces the synchronization, but the downside is that as with all synchronization, it allows for deadlocks when not used in the right way. As already discovered, nesting event structures is almost never the right thing to do, at least not yet.
As noted earlier, it is possible to leave the Event Structures nested, but turn off the UI locking. This appears to solve the problem, but it isn't how I would do it. I think a much better solution is to combine the diagrams of two structures into one. The value change for hidden controls will not happen, but it doesn't hurt to have it in the list of things to watch for. Another option is to place them in parallel loops. This will let the first structure finish and go back to sleep.
0. Read the LabVIEW Help on "Loops and Case Structures, Case Sequence and Event Structures, Event Structures, Caveats and Recommendations when Using Events in LabvIEW"
1. Only place a single event structure within a while loop. In reality the while loop and the event structure are intimately linked so there should only ever be one event structure per loop.
2. Never place an event structure within an event structure. It is better to solve issues where you might want to do this with some thought and perhaps a second while loop in parallel.
3. It is possible to have more than one event structure while loop combination on the same block diagram. There are valid reasons why you might want to do this: eg to have some events handled without pausing the while loop (Lock Panel Until Handler Completes = False) and others to wait until the handler completes (= True). The advice here is to separate out those events that lock the handler and those that do not lock the handler into separate while loops.
4. Whether the panel is locked until the handler completes is set individually for EACH case in the event structure.
5. It is advisable to notify the user (ie with a message popup or mouse busy) when tasks that lock the panel take a long time to execute (> 0.5 s). Another way is to set some busy status message visible as the first step and then hide this message when the case exits.
6. Boolean switches and their state require some thought when used within the event structure. With the default button style ("latch when released") LabVIEW reads the state of the boolean and only after reading does the button change back to it's other state. If the boolean is the "switched" type then TWO events are generated when the boolean is switched (ie F->T and T->F). If a single case of the event structure is used for "value chaged" on a boolean that is of the "switched" type, make sure that the code is only executed when the true event is processed (ie with a true/false case selector). This is most relevant where to use a boolean as a local variable then the boolean type must be of the "switched" type.
Why doesn't the event structure register local variable changes?
The main reason for not sending events for programmatic value changes is to avoid feedback.
A happens. In responding to A, you update B and C. If responding to B or C results in changing A, then you have feedback and your code will behave like a dog chasing its tail. Sometimes the feedback will die out because the value set will match what is already there, but often it will continue indefinitely in a new type of infinite loop.
One solution to this is to utilise User Events. Then you either have the value change and the set local both fire the user event, or you can combine the event diagram to handle both and just fire the event when writing to the locals. Today, you can accomplish this with the queued state machine using the state machine to do all the common work and just having the event structure pass things to the queue.
User Events are programmatically generated events. You define what data they carry and when they fire. They can be handled by the same event structure as the User Interface events. An advantage of User Events (unlike User Interface Events) is that LV doesn't need to perform a context switch into the UI thread. 
Locking The Panel
Given the synchronized mechanism of events, it is pretty easy to repost events to another queue or turn off locking and synchronization. If the event structure isn't synchronized, it would be impossible for the diagram to add it and become synchronized with the UI, so it is at least necessary for event diagrams to be able to lock the panel.
Should it be the default?
In our opinion, yes. When responding to an event, it is pretty common to enable/disable or show/hide some other part of the display. Until you finish doing this, it is wrong for LV to process user clicks on those controls, and LV doesn't know which controls you are changing until you are finished.
Additionally, it isn't the best idea, but what happens when the event handler does something expensive like write lots of stuff to a database inside the event structure? If the UI is locked, then the user's events don't do much, ideally the mouse is made to spin and this works the same as a C program. The user is waiting for the computer, and the UI more or less tells the user to be patient.
If the UI isn't locked, the user can change other things, but you can't execute another frame of your event structure until this one is finished. This is a node. It must finish and propagate data before it can run again, and the loop it is probably in can't go to the next iteration until it completes. You would have low level clicks being interpreted with the current state of the controls before the diagram has a chance to respond. This is sometimes the case, so it is possible to turn off event handling on the cases where you know that you may take awhile and you do not affect the state of the UI.
If you need to respond to the events in parallel, you can make a parallel loop, add an event handler for the other controls, and handle them there while this one churns away. That will work fine and it is IMO clear from the diagram what is synchronized and what is parallel. Taken to an extreme, each control has its own loop and this approach stinks, but it is a valid architecture. Note that for this to work well, you need to turn off the UI lock or have a node to release it.
Another way of doing expensive tasks is to have the Event Structure do the minimum amount necessary before unlocking -- treat them like interrupts. Have the event structure repost expensive operations to a parallel loop or fire up an asynchronous dynamic VI. Now your event structure is free to handle events, your UI is live, LV is still a nice parallel-friendly language, and your diagram just needs to keep track of what parallel tasks it has going on.
In the end, I'm not sure I can convince you, but if you continue to experiment with the different architectures that can be built using the Event Structure, I think you will come to agree that it normally doesn't matter whether it is locked or not. There are times where it is really nice that it is locked, and occasionally you may turn off locking so that the user can do additional UI things up to the point where synchronization is necessary again. For correctness, we decided that locking should be the default.