Yes if it's not filtering the records it means something is still wrong.
Try running the Subreport as a separate report (Get into the Subreport and hit the refresh button). You should be prompted for the 3 parameters albeit without the Cascading values. Manually type in the values and check if the Stored Proc returns filtered results.
If it does, it could again indicate an incorrect link between the Main Report and Subreport.
If it returns all the records, then surely something wrong with the Stored Proc.
-Abhilash