Fresh install, using latest Drupal Core and Chosen 7.x-2.0-beta4.
Options applied to term reference field:
Simple hierarchical select settings:
- Force selection of deepest level
- Chosen style: let chosen decide
Apply Chosen to the select fields in this widget?
Chosen settings in admin/config/user-interface/chosen:
- Single select: Always apply
- Apply Chosen to the following elements: select:visible
What I get (default select form, no Chosen style):

What I get if I add another item and drag it (Chosen style applies only after I drag the item):

Maybe this can help: https://www.drupal.org/node/1969666 , there is a patch there, still isn't ported and I'm not sure is relevant.
Comments
Comment #1
kopeboyComment #2
stborchertPossible duplicate of #2084019: Support Drupal Chosen 7.x-2.0-alpha3 using Chosen v1.0 .