Update:

I think I've figured this out ... looking at the marketing example, they are not using the (builtin) milestone column, but created a single select type column called milestones, with option values according to the release milestones. When grouping by this new single-select type column called miletstones, the spreadsheet shows an add item entry field as expected.

Sneaks pretty sneaky if I'm being honest.

I'm also interested in this. It works EXACTLY as expected if I were to create my own "Milestones" field as described in @nicbet's workaround.

Having to work around it feels unnecessary and inefficient.