Can you identify the specific layout you are trying to modify to use this filter? Is it still mostly the same layout as found in a new copy of the starter solution?
Yes exactly. It's the same layout all I have done is change the theme. I have uploaded a screenshot. The first orange box in screen shot shows the selected layout and the second, the 'Status Filter'
One of the things that I very actively dislike about the starter solutions is the utter lack of any supplied documentation. No comments of any time increase the amount of time needed to reverse engineer the start up solution design.
To do what you want requires changing both the value list defined Popup Menu and also the script performed by the OnObjectModify trigger for this field.
The script takes the text entered into this field and if it is not the word "All" it performs a find by using the value selected in this popup menu to search for records with that text entered into the Group Field. Since your location is stored in a different field, simply updating the value list doesn't allow you to search by country.
You can get this to work by modifying the script. If you want to only search for different countries, you can change the Perform Find [Restore] script step's find criteria to specify using Contacts::location with the $$Filter criterion instead of groups.
How to find and open the triggered script for this pop up menu:
1) enter layout mode and right click the pop up menu
2) select Script Triggers
3) Select the OnObjectModifyTrigger and click Select to open the Specify Script dialog.
4) Pull down the "gear" drop down and select the "Edit..." option