I sense this is a "feature". I am in a SharePoint online environment. I have document sets turned on, and I have a document set created. When I turn content approval on, in the approve/reject view, the documents appear in the view at the same level as the document set. Example: Document set 1 File 1 File 2
If you open the document set, the files appear as they should.
I found a workaround, but I wanted to check with the collective, if others had experienced this as well.