Editing vertical and horizontal clips background glitch...

Is this a glitch that has been fixed?

No, this is not a glitch but rather how QT 7 Pro has always worked. (I.e., the display window "montonically" increases to the maximum dimension of played content and does not reset to the actual dimensions of the currently playing content.) The normal solution is to create a fixed size background having the color and, if desired, texture you want and then overlaying the videos in the position you wish to display them. This can be centered or offset to best suit your needs. (E.g., I use this technique to create video seasonal cards with text messages for various members of my family in different parts of the country.)

For instance if I were mixing 1280x720, 720x1280, 1280x960, 960x1280, 1280x960, 1080x720, and 720x1080 video content, I would layer the video on a background whose dimensions equal that of the widest and tallest videos to be merged together (or larger if I wish to include display margins). Once the master mix is created, the edited content can then be "flattened" and/or resized during a targeted export for whatever use I have in mind—e.g., posting to a web site, emailing as a "reference" movie video, DVD or BD creation, streaming, or posting to iTunes for TV playback, etc.

Thinking out loud a bit, should I paste and edit all the movies first, then position the 'final' movie mix over the fixed background? That way I'd be adjusting each clips position, but no longer deleting...

I normally build the target clip piecemeal using the following workflow:

1. Create the background file in a graphic application like Photoshop and save the file as as a JPEG file.
2. Open QT 7 Pro and use it to open the JPEG file in a QT 7 player window.
3. Open one of your source video clips in a QT 7 player window.
4. I normally create a "new" player window at this point to act as an temporary output file to avoid the possibility or overwriting the original clip opened in step 3.
5. Reselect the player opened in step 3 and use the "Command-A" followed by "Command-C" keyboard shortcuts to copy the clip data to temporary memory.
6. Close the video clip opened in step 3.
7. Reselect the the temporary output player created in step 4 and use the "Command-V" shortcut to paste the data in temporary memory to this player.
8. Select the background player window created in step 2 and use "Command-A" and "Command-C" shortcuts to copy the background frame data to memory.
9. Reselect the current output player and use "Command-A" to select the entire file.
10. Reselect the temporary output player and use the "Add to Selection & Scale" Edit menu option to add the background to the player and scale its length to the same length as the output player.
11. Open the "Properties" window and set layer and offset display properties as desired.
12. Set the temporary output clip aside and repeat steps 3 thru 11 as many times as needed to process all of your source clips.
13. Once you have processed all of your source clips, merge the temporary output players together in a desired order and save or export as needed to produce the final target output file.

This should eliminate the problems you described above. I normally use the same background for all clips and change the offsets to center the clips within the display area but you are not constrained to do likewise. For instance, if you add text or text graphics you may wish to better "balance" the elements within the background/display area.