mc does not sort case sensitive
Sorting is determined by national language settings. For English (UK and US)
that is AaBbCcDd etc not ABCD-Zabcd-z. So if its sorting AaBbCc etc then the
behaviour is correct.
If you prefer the old (wrong) behaviour set LC_COLLATE appropriately
This is exactly what is called 'case insensitive'. If this is intended behavior
than the check box is confusing and has to be renamed or removed.
No matter what was the reason for change, following had to be taken into
consideration: mc is a tool for those who are not so computer literally, in
simple words, for users and this category of people really has problems
adjusting to the changed behavior.
What I suugest is making old sorting order default and new an option until it
becomes common. Remember that not everybody will immediatelly move to the
latest version and there still will be thousands users used to it. In that
world is't enough to begin your file name with a capital letter to have it on
top of the list, which is quite convenient.