Well Lee I have to say you've got me flummoxed on this one! I hope by 'upping it' someone more knowledgeable will be able to help - certainly you do appear to have the settings right and I can't see how, within a course/category you only have 421 students assigned that you get the whole lot in the gradebook when you mark a particular assignment in that course. I'd love to see some screenshots; there must be something we've missed. What do you mean by 'since grades were introduced'? Do you mean since you started using the gradbook? As grades were there prior to 1.8.3. Maybe this is an uprading issue?
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