I hate to tell you this.... but I don't think there is a way to have this functionality in repeating sections. We can't use filters in a browser form on our dropdowns, so by using a web service you are getting back just the data for each ddl that would apply to the value in the first ddl.
If your data doesn't change very often -- that is, if all the options in your first dropdown are pretty set, you could add a handful of dropdowns for your second drop down. Conditionally format those to hide or show based on the value of the field the first dropdown is bound to. Then, for your 2nd ddl, use different data sources for each, so that each has only the correct options for a specific selection in the first ddl.
Hopefully someone else has a better idea for a work around, because that idea strikes me as kind of kludgy......