Hi are you using the Convert Task in PDM to create a PDF of the drawing?
You can configure the task so that it create a reference between the drawing and the PDF that is created, however the reference is created such that the PDF appears as the PARENT of the drawing file.
Once the reference is created, it should then show up in any transition dialogs.
It appears that you're doing everything correct as you've got the pdf at the top of your reference tree indented as it's being treated as a sub-parent. The problem looks like sub-parents aren't recursively added to reference trees. So you'd see the pdf if you transitioned test-sheet_metal_part.slddrw, but not if you transitioned test-sheet_metal_part.sldprt. Is that the behavior you're seeing?
I agree. It looks like a limitation with PDM only displaying 1 level of sub-parents. I have never seen it display another level on top of the sub-parent. I could definitely be wrong though...