You've got something unusual set up there. Can't tell for sure what it was, but the values shouldn't appear already checked. Perhaps the field from the related table of values is formatted with check boxes instead of a text field in your current layout's table. That would fit what you describe here.
Conditional value lists should work with check box groups and radio buttons just like drop downs and pop up menus, with one key limitation:
If your conditional value list has a longer list of values than you have provided room for in the size of the field, then the additional values will not be visible. Since conditional value lists are often very dynamic when it comes to the number of values that might appear at any given time, this sometimes results in situations where you just can't use a single check box field with a conditional value list. If this is the case here, you might want to use a portal of related records to serve as a kind of "check box group with a scroll bar" in order to create something that's sufficiently flexible.
Cheers, you were spot on with the field from related table, was formatted with check boxes! All working now.