Wouldn't the installation of a custom recovery (if available for this device) fix the problem?
Yeah, probably...I'd like to see the source code for that "stock" recovery that's doing that (just making fun of "stock" since they're bound to be different from device to device I supposed, especially if a carrier gets a hold of them).
ALFoR could probably just use the Settings -> Backup & reset -> Factory data reset function in lieu of doing it from the stock recovery (now that we're pretty sure what the mechanism is that messing with his device).
Very interesting thread .