That's outside the scope of what the above can do..
The above code simply sets the author parameter in query_posts to that of the current user... (pre query)..
I can make the code apply to only a select level, but it's not going to be possible (not easily at least) to have a select level user see X levels worth of posts..
I believe this is something you'd need to handle with plugins and modifications to said plugins. I wouldn't know where to start because i don't personally use any of the role management plugins.
The issue i see is that in order to know which posts fit the criteria you'd need to do an additional lookup query to find which posts full under said criteria then move along that information to the pre query posts function above, which could be quite a large query if you have alot of users or posts...
It's not to say i'm totally correct, i'm sure with a little imagination and patience such a task could be handled efficiently, right now i'm not sure i can give you a clear direction being that it's not something i've had to tackle before...
What i tend to do when i'm looking to do X in WP (x being anything), is look for a plugin that gets as close as possible, then take out or strip what i need/don't need, from it..