I suspect that is a limitation with the way include and exclude areas are automatically extracted from surfaces when overlapping. Please try the following instead.
- In the Areas rollout, turn off the Surfaces layer. It'll still be used to calculate Z Position, but now it isn't used for area calculations.
- Add a large closed spline that encompasses the whole terrain, set to include. This will add back all the items over the whole terrain but will ignore the fact that the surface is split and/or overlapping for falloff calculations
- then add your exclude area to the top level.
Hopefully that helps,
Paul