Everything seems normal except there seems to be a direct level formatting
that keeps appearing and changing certain styles back to level 1.

You probably use Document Map? If that's shown, Word does some automatic
formatting, and applies outline evels to paragraphs that look like headings.

When you use heading styles with outline levels, that doesn't happen as much
as when you use no heading styles... but it might still happen.

http://word.mvps.org/mac/DocMapMac.html

I don't think this behaviour can be changed, but you can repair the damage
with a macro:

Dim myPara As Paragraph
For Each myPara In ActiveDocument.Paragraphs
myPara.OutlineLevel = _
myPara.Style.ParagraphFormat.OutlineLevel
Next myPara

Regards,
Klaus