Issue: Heading reference inside article reference

This already exists, undocumented, or if it does not work it is a bug. You need to reference the actual anchor by #anchor_name... for something like you have above it would probably be [noparse][wiki="watch adjustment#private_label_adjustment"]adjusted[/wiki].

I spent a little time on Wikipedia looking at this and templates. Your use of underscores in the example leads to another question. Are underscores and spaces equivalent in article name references as they say they are on Wikipedia?
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I checked the usage of # in the wiki reference and it does not seem to work. The popup shows the top of the article, not the reference point.

Here is the actual bb code used [WIKI="Watch Adjustment#Private_Label_Adjustment"]Adjusted[/WIKI]. Clicking on the link also goes to the top of the article, not to the heading.

No. Underscores are underscores.

I actually tried the sub heading # notation both without underscores and with them as above. Neither way worked to reference the heading rather than the article. Do I need to do anything else to make this a formal bug report?

Please provide the link created by that BB-Code example.

http://mb.nawcc.org/showwiki.php?title=Santa+Fe+Watch+Co.#What_is_the_Descrip tion_of_Adjustment_

The troublesome link is at the end of the paragraph and is the second occurence of "Adjustment." The first one is an ordinary url to the same location.

Both of these links worked for me using Firefox.

Do you mean they both display the popup? Or do you mean you can link to the article?

Only the second one can display a popup since it is the only wiki link. The popup it displays is not the sub heading text, but the top text of the article. The link it goes to is correct, but was not earlier. I was probably having a cache problem with that.

The expected behavior was to have the popup text begin at the link point.

No the popup doesn't jump to anything. That's not the way it's designed. All of the anchor stuff is handled by the browser, and I don't think making the popup previews any slower would be wise. This would entail trying to find the desired anchor point on the server side, then backtracking to find a place near it that doesn't break any HTML so it can take a snip... something the browser itself doesn't need to worry about because all the HTML is rendered anyway.