It turns out I had the sense of the GetLocalBounds bool wrong everywhere, so ...

views/mouse_watcher.cc

 // Copyright (c) 2010 The Chromium Authors. All rights reserved.
 // Use of this source code is governed by a BSD-style license that can be
 // found in the LICENSE file.
 
 #include "views/mouse_watcher.h"
 
 #include "base/compiler_specific.h"
 #include "base/message_loop.h"
 #include "base/task.h"
 #include "views/screen.h"
@@ skipping 62 matching lines @@
     }
   }
 #endif
 
  private:
   View* view() const { return mouse_watcher_->host_; }
 
   // Returns whether or not the cursor is currently in the view's "zone" which
   // is defined as a slightly larger region than the view.
   bool IsCursorInViewZone() {
-    gfx::Rect bounds = view()->GetContentsBounds();
+    gfx::Rect bounds = view()->GetLocalBounds();
     gfx::Point view_topleft(bounds.origin());
     View::ConvertPointToScreen(view(), &view_topleft);
     bounds.set_origin(view_topleft);
     bounds.SetRect(view_topleft.x() - mouse_watcher_->hot_zone_insets_.left(),
                    view_topleft.y() - mouse_watcher_->hot_zone_insets_.top(),
                    bounds.width() + mouse_watcher_->hot_zone_insets_.width(),
                    bounds.height() + mouse_watcher_->hot_zone_insets_.height());
 
     gfx::Point cursor_point = Screen::GetCursorScreenPoint();
 
@@ skipping 64 matching lines @@
 void MouseWatcher::Stop() {
   observer_.reset(NULL);
 }
 
 void MouseWatcher::NotifyListener() {
   observer_.reset(NULL);
   listener_->MouseMovedOutOfView();
 }
 
 }  // namespace views