I'm creating this as a placeholder bug report for any issues I find during testing of WCM functionality in the presence of circularly layered directories - I'll add comments describing each issue as I find them.
Steps to replicate the test environment:
1. Create two web projects (eg. test1 and test2)
2. Create a folder in the root of each web project and promote it to staging (eg. test1folder and test2folder)
3. In the staging sandbox of web project test1, navigate into test1folder and create a layered directory whose target is test2, ROOT/test2folder
4. In the staging sandbox of web project test2, navigate into test2folder and create a layered directory whose target is test1, ROOT/test1folder