There are bugs in the interactions between hidden grades, aggregation, and student view grades capability. Perhaps I am misunderstanding how these items should work, but it doesn't work as I think it should.
1) If I set the capability "View hidden grades for owner" (moodle/grade.viewhidden), the user report displays hidden grades, regardless of the settings in the course for User Report.
2) If I don't have this capability set, the hidden items are displayed or not displayed according the settings in the course for User Report, but the aggregations are affected in a funny way. Worse, the User Report I see as a Teacher has different totals than the User Report seen by the students.
3) Some aggregations are not printed in the user report, even though those items are not hidden. They should up as empty grades.
Some of the problem is the logic in moodle/grade/report/user/lib.php. The logic around line 175 depends only on the capability of viewing hidden grades and now on the course settings about whether these should be displayed. Also the logic for how hiding affects aggregate grades in the call to grade_grade::get_hiding_affected doesn't seem to be working correctly for aggregate grades.
Let me know if you have trouble reproducing this and I'll try to create a small test case for you.
MDL-11837 Add option to conditionally aggregate hidden grades