You have to keep in mind that C2 is very "picking" driven. It picks objects to work with. Event two says "Pick the Sprite and Sprite2 that don't overlap" - there are none, since there are no Sprites to pick, so that fails. The next also obviously fails since there are no Sprites again to test, so neither condition can succeed.
You would never do it this way anyway. You would check for overlapping first, Else just do whatever. You don't need a second condition.
This isn't going to change, as the whole engine relies on the "picking" concept.