I had the exact same problem, nothing was working, then I found a solution.

Select a heading, then select Home > Paragraph > Multilevel List > Define new Multilevel List...

Click on More >> at the bottom left of the dialog box.

Make sure everything is set properly in the "Enter formatting for number" textbox by setting the number style and "Include level number from" listbox. Ensure that "Restart list after" is set for the previous list level than thhe one you're editing.

To sort this out, I followed the steps below -

1. Right click the number
2. Click 'Adjust List Indents...'
3. Click 'More >>' (bottom left)
4. Untick the 'Restart lst after:' option on the right
5. Set 'Apply changes to:' to 'This point forward' (top right)
6. Click 'OK'
7. Right click the number again
8. Select 'Numbering -> Set numbering value...'
9. Select 'Continue from previous list'
10. Tick the 'Advance value (skip numbers)' box
11. Set the numbers to 1.2.1

Long winded, but it seems that I was unable to do this wihtout following steps 1-6, I guess because Word assumes that you would never intentionally want to start a list at 1.2.1.