So here is the XAML that I have:
Returning back to your original solution and the problem of "the template selector doesn't get reapplied": you can refresh your view like that
CollectionViewSource.GetDefaultView(YourItemsControl.ItemsSource).Refresh();
where for brevity sake your ItemsControl is referenced by its name ("YourItemsControl") added to your XAML:
The only problem may be how to choose right place in your project for this refresh instruction. It could go into a view code-behind, or, if your IsLeaf is a DP, the right place would be a dependency-property-changed callback.