Currently it appears to be impossible to use selective sync when one sync folder contains another. Why should this be? This is a feature that Dropbox handles well, but Resilio Sync currently does not.
Option "Sync to this device" is technically not capable of deleting files. Unless these files where deleted earlier from other peers that were offline. Can you please contact support and give details about your case, exact steps you did, your environment and other peers, subfolder affected, and debug logs from all affected peers. here's instruction.
Check archive on remote peers