To delete a subgroup in dashboard, go to the Groups and Subgroups Widget, find the group you want to delete, make sure all the group folders are in the collapsed position (click the collapse all button in the bottom left) and click, hold and drag the group to the trashcan in the bottom right corner of the widget. This will prompt you to see if you are sure you want to delete that group.
That said, we are aware of a bug that the delete function is broken under the surface...i.e. it looks like it works fine in the widget, but on the database side it's not being affected. We are working on this bug and should have it resolved soon.