This has to do with the way the system treats "Full Day" items vs. "Partial Day" items.
?Full Day Items remove all aspects of the schdule, whereas Partial Day Items sort-of "lay on top".
?One to solver your bigger issue is to use the "Schedule History and Rollback" functionality in the Master Schedule Intraday view to revert the schedule back to the state it was BEFORE the Full Day Time Off was added.
?I hope this helps.
?-TT