Strange ... it works for me though. Here is my p2/index.php file with the two additional lines to hide posts. Compare and see if you have the same.
<?php
global $paged;
prologue_new_post_noajax();
get_header();
?>
<div class="sleeve_main">
<?php
if( current_user_can( 'publish_posts' ) ) require_once dirname( __FILE__ ) . '/post-form.php';
?>
<?php if (current_user_can('level_10', get_the_id())): ?>
<div id="main">
<h2><?php _e( 'Recent Updates' , 'p2'); ?> <?php if ( $paged > 1 ) printf( __('Page %s', 'p2'), $paged ); ?>
<a class="rss" href="<?php bloginfo( 'rss2_url' ); ?>">RSS</a>
<span class="controls">
<a href="#" id="togglecomments"><?php _e('Hide threads', 'p2'); ?></a> | <a href="#directions" id="directions-keyboard"><?php _e('Keyboard Shortcuts', 'p2'); ?></a>
</span>
</h2>
<?php
if ( have_posts() ):
?>
<ul id="postlist">
<?php
while( have_posts() ):
the_post();
require dirname(__FILE__) . '/entry.php';
endwhile; // have_posts
?>
</ul>
<?php else: // have_posts ?>
<ul id="postlist">
<li class="no-posts">
<h3><?php _e('No posts yet!', 'p2'); ?></h3>
</li>
</ul>
<?php
endif; // have posts
prologue_navigation();
?>
<?php endif; // hide post ?>
</div> <!-- main -->
</div> <!-- sleeve -->
<?php get_footer( );
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