Howard,
I tested this on Moodle 2.3.2+ and the Advanced Uploading Assignment 2.2 didn't send out grading notification to students but the Assignment 2.3 did. So, I think this is a bug and you aren't missing anything. The Assignment 2.3 doesn't even have an option for the instructor to controll the sending of this notification to the student, it is controlled by the student through their messaging settings. Maye the problem is the assigment is trying to send the message the old Moodle 1.9 way and not through the Moodle 2+ messaging system.
I am guessing you already aware of this, but I am including the following for anyone looking to debug this. In Moodle 2+, these notifications are also controlled by the individuals message settings: "My profile settings"/"Messaging". By default, I believe they are set to send email when the user is offline and online. Users can also "Temporarily disable notifications" and "Send email notifications to: a different address" and "Prevent non-contacts from messaging me:"