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.