Sparse Mode Threshold specifies how Report Generator allocates memory when it builds its internal tress structure.
However, if you are using Show Missing data (turned on, true), report Generator always uses dense memory mode. This is why your report is running in dense mode.
For more information on Sparse_Mode_Threshold see page 332 of the Report Generators Programmers Guide.
For more information on Show_Missing_Data see page 322 of the Report Generators Programmers Guide