I think I am with MacGyvr on this one. In Windows 7 there are three things I can do in the left pane:
1. I can single-click on the arrow. The tree expands to show which folders are present in the folder I am clicking at. Nothing happens in the right pane.
2. I can single-click on the folder icon (or name). The right pane shows the content of the folder. Nothing happens to the tree in the left pane.
3. I can - although I never do that - double-click on the folder in the left pane to achieve both of the previous results simultaneously, i.e. expand the tree in the left pane, as in 1. and at the same time show the folder content in the right pane, as in 2.
Just as MacGyvr said, I use arrows to navigate to the folder I want and then click on the folder to show its content. I am not sure why would anyone care whether Explorer shows the content of all intermediate folders in the process.
Yet, it seems that people want just that, and thus are asking to change the Windows Explorer behavior to have the above option 3. working with a single click. Those who are interested in that can look for the Microsoft answer to exactly this question
here.
Hope this helps.