Nested Block & Block Instance Conflict

We are having problems with conflicting Nested and Individual Block Instances.

We work with Product BLOCKS these contain a product and a nested child BLOCK.
When inserted into Rhino 6 alone these work fine.

However if we then insert the same child BLOCK straight into our master file, we encounter some problems. The Child block instance, becomes unusable. It cant be transformed or deleted its basically frozen inside the model. Whereas the original product BLOCK (containing the nested child) is still fully usable.

Should this happen? Is there a way around this? Surely these should both work fine, or is the answer that this is happening due to the nested child BLOCK and the child BLOCK having the same name.

Hi Naomi - it would be helpful to have a simple example that shows the problem - just a few boxes or similar in files replicating the structure that causes the problem.