So what does the "restrictions: gap before the same artist can repeat" do on the auto DJ page?
Looking at your screenshot, perhaps the 'gap before the same artist can repeat' function does not function when using a folder as a source?
Maybe it then completely ignores all tags, artist tags included?
(which would make some sense to me, but if that is indeed the case, the refining options below it should probably be grayed-out to indicate that)