Nah, there is something wackier going on hereā¦
As you can see from my first screenshot, I have "Tooltip" and under it, as a child, I have "Tooltip Label." If I move both of them up right under UIRoot, as you suggest. Nothing changes. It is the exact same problem.
If I split them and make "Tooltip Label" not a child of "Tooltip" it works - I have to manually resize it to 32x32, but the size is correct. The problem now is, however that the label no longer shows at the correct location on the screen as I hover over elements, because it is no longer parented correctly.
Am I missing something altogether here?