Looks like this may actually be fixed in the latest version. When I change a device button to two lines of small text -- say:

WATCH
DVD

When I view the device I get "WATCH DVD" in big text on two lines on each page. If, say, I use:

DVD
VIEWING

I get "DVD" in big letters on the first line and "VIEWING" in little letters on the second line. Seems to be working well.

There is a "gotcha" though. If you physically move one of the main menu buttons, the name will NOT change the device. I haven't downloaded such a file to the remote yet, so I'm not even sure it'll link to the device properly.