Update: This is slightly more complex; the reason why you were still seeing the option for creating "Private" and "Closed" groups is that your user has the "Edit any social group" permission, which bypasses those permissions.
This bypass is necessary because social group moderators (site staff you've assigned to moderate all groups) should not rely on those three permissions to be able to successfully edit a group that is Closed, Private or Hidden.
I realise this is a little bit confusing, so I'll change it such that creating a new group always checks for those creation permissions.