The “sizing applies time stretch” pointer in the key editor behaves just like the regular pointer and doesn’t timestretch anything.
It’s like this since ever in Cubase. Actually, I have never understood, what should the Sizing Apply Time Stretch do in the Key Editor. If you want to speed the MIDI Notes up or down, use the Sizing Apply Time Stretch tool in the Project Window, please.
Well, it should work as timestreching in the project window, so it wouldn’t be required to use time stretching in the project window.