Well, it appears that I figured out what was causing the false compartment flood recovery. Also, there is a workaround for the compartment destroyed message when trying to move an officer into a damaged compartment. This message is a bug caused by increasing compartment hitpoints (such as LRT does). Anyways, the workaround is to left click on the supposed 'destroyed' compartment. Then right click on the officer or crewman to move him into that compartment. It really works.
I have been playtesting this new version with the terrain collision damage disabled and heavier compartment flood settings. I was heavily depth charged, and sunk to the bottom sea bed. After hours and hours of trying to control the flooding and pump out the water, we ran out off oxygen and died before we could lift her off the ocean floor. She was still too heavy from all that sea water in the compartments. Talk about a Das Boot moment.