Problem with bone and subsurfacing (look at video in desc.)

i seem to have a weird problem, when i move the bone around (which has weight paint on the vertices) it makes a weird deformation (watch video). but when i just move the vertices (same ones, and in edit mode), there is no strange deformation. could somebody figure out what the problem is? because i have no clue.

here is blend file:
acharacter head rigging V4.blend (898.4 KB)

here is a video of the desired affect (different rig):

(update): i think the problem might have to do with weight painting affecting whole area rather than just moving vertices (though it looks same on rig in vid above), is this something to do with bone properties?