Yes, you are correct that the fact that both layouts are based on the same table occurrence (Item) is the source of your trouble. For a given window, each table occurrence has it's own found set, current record (your cursor) and sort order. Different layouts based on the same table occurrence thus share the same found set etc.
There are two options:
Go to Manage | Database | Relationships and use the duplicate button (two green plus signs) to make a new occurrence of Item, then base the "chlid" layout on this occurrence instead of the original.
Open a new window with the go to related record step so that you have one found set in the opened window separate from the found set of records in the original window. close the window when done.
And one final issue. I don't think your current go to related record is going to work because a relationship requires two table occurrences and you are using the same table occurrence for both the starting layout and the occurrence specified in the go to related records step. Doing this, if I remember correctly will just pull up the same found set on layout 2 as is already present in layout 1, it won't pull up a list of child records via a relationship.
Thanks for your prompt answer. Your method did indeed work. I actually had tried most of that, including the second table occurrence, with the exception of opening a new window. That was the trick!
I do this all the time without opening a new window--it can cause issues on windows systems if the windows are maximized. Simply using a different layout basd on the new occurrence should work here.