<respectcurrentmapscale>true</respectcurrentmapscale>
Hey Matt,
The expected behavior is that if the group layer is turned off, all the sublayers(even if they are still checked-on in the TOC) will not appear in the legend. The Legend component remains in-sync with what layers/sublayers are visible on the map. Is that not what you are seeing?
There was another bug reported for version 3.0. Take a look at this thread to see if that is something effecting your application: http://forums.arcgis.com/threads/60137-Viewer-3.0-Legend-Widget-Showing-all-layers?p=207648#post2076...