I would expect only the selected alternatives to receive events.

And that's what happens - both DefaultTestObserver and PrioritizedTestObserver are selected, thus enabled and receive notifications.

This contradicts the above case.

I don't think so. If you use @Priority to select alternatives, then both alternative beans are selected and enabled. If you only select one in beans.xml, then only one alternative bean is selected, i.e. enabled and notified.