Shawn - As you say: It's behaving as if there was a "exclude c:\temp\...\*" somewhere. That will cause a directory structure to be backed up, while omitting its contained files.
Whereas a manual 'dsmc i' causes backup of the files, but the nightly schedule excludes and expires them, it sure sounds to me like that schedule has been running for some time, and is still using the local exclude options that were in place when it was started back then, with such an Exclude being part of them. I would use the technique summarized in "Scheduler process, see its options" in ADSM QuickFacts to see what that scheduler process has stuck in its mind. Or, just restart the scheduler. Richard Sims