You could create the data source explicitly and then set the data using its API:
$scope.thingsOptions = {
dataSource: new kendo.data.HierarchicalDataSource({
data: $scope.things1
})
}
$scope.toggleFlag = function () {
if ($scope.showLimitedRecords) {
$scope.thingsOptions.dataSource.data($scope.things2);
} else {
$scope.thingsOptions.dataSource.data($scope.things1);
}
}