When you programmatically expand a node on the server, this does not trigger automatic generation of any child nodes that would be loaded on-demand.  This is the case regardless of which load-on-demand type you're using (automatic or manual, with or without smart callbacks).  This is documented in the Remarks section of the API documentation of the DemandLoad event of WebTree:

If a node is expanded programmatically by setting the Expanded property to true, then it must be populated programatically at the same time as well. In this case, the LoadOnDemand event will not be fired.

As suggested in this remark, if the programmer wants to programmatically expand a parent node and have child nodes appear in this setup, the programmer will have to manually add the correct child nodes to the Nodes collection of the expanded parent node.