It seems like the ideal case to me; generous on input, strict on output. In most cases, users won't even know that the insensitivity is there, in which case it will almost never affect them (since users very rarely want two files with the same name, differentiated by case). For users who do know about it, it's not confusing.
Other languages have capitalization rules that are far, far more complicated than English, involving additional characters that either denote capitalization or a semantically different word depending on context.
Personally, I'd aggressively pursue case-insensitivity and treat the problem of "oops the user can't create two files that have nearly the same name" as a much smaller bug than "oops the user can create two files have semantically the exact same name".
Retain the case, but don't use it when testing for uniqueness. That way, I can type "accounts for proctors' attention.xlsx" and the filesystem will know what I mean. But when I list the contents of a directory, it would show up with its original casing.
Case insensitivity is locale-dependent, so you have to either pick a single locale and confuse users with other locales, or deal with the possibility that you could have two files in your filesystem that have the same name in your locale.
I've seen plenty of "Accounts for Proctors' Attention.xlsx" style files. Case insensitivity would lose the case there. :/