The number 1 has been the default for the select tool for a long , long, long time IIRC. You must have changed it yourself at some point and C7 is just using your settings.
Could it be a focus issue? Like, always on top, or clicking a different window. Maybe try changing the state ot the AOT back and forth to see it it changes the outcome?
OK, I’ve found a workaround. Using a generic remote command “command/mixer/Settings: open/close selected” works fine in Cubase 6.54 to open/close the channel editor but (for me anyway) will only open the channel editor, not close it. The workaround is to make a macro using “edit/edit channel settings” and then triggering the macro from a keystroke.