The desktop itself is transparent (so you are looking at the wallpaper of the Thin Client). The cursor changes between the "Windows form (pointing to up left)" and "Linux form (pointing to up right)" when moving the mouse over the desktop.
None of this behaviour is seen when using the RES shell. When changing the seamless mode to fullscreen, the Windows desktop is displayed correct. The company however doesn't want to change to the full screen option.
Uhm, call Ghostbusters?

No - seriously, I believe the reason why the powerfuse shell works as a seamless app, is that it isn't explorer. In other words, if you in a non-powerfuse env try to run a published native explorer desktop in seamless windows, you'll get a Seamless Host Agent warning (which I think PowerFuse can supress) because you, exactly as you describe, are trying to run a desktop on top of a desktop. It's not supposed to work.
My take on the situation is that if that's what the customer wants to do (having a desktop on top of another desktop, you're better off changing the displaymode of the citrix client to either FullScreen or Percent of desktop (say 99% or something - you'll get a border and the ability to max/minimize the display window)
In summary this is a delivery/display related issue. As stated PowerFuse's only involvement in this game is that it can suppress the warning message of the client. I believe this is done to better deal with passthrough publishing n'stuff.
Hope this helps