Hi @Derek Kent,
Per my test, I could reproduce your issue. After doing some research, it should be an expected ebhavior. Since you can only choose one hub site with which to associate your site. Level 3 won't be the child site of level1. You could only see one site in level2. You could refer to the documenthttps://support.microsoft.com/en-us/office/associate-a-sharepoint-site-with-a-hub-site-ae0009fd-af04-4d3d-917d-88edb43efc05#:~:text=You%20can%20only%20choose%20one,once%20the%20request%20is%20approved.
If you want to custom your navigation bar, you could refer to following steps
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