That is the issue. Modifying the heading style allows you to create a single-level list. You need a multilevel list.

You probably want to save your list style, so you'll click the Multilevel List button/arrow and choose Define New List Style.
Here is a video. She talks too slow, but shows how to do it.
http://www.youtube.com/watch?v=JRXR-0l1-W4