But when duplicates are stripped, it should never become larger than all songs on the player.

Duplicate stripping is only performed when you re-shuffle, or when you select a fresh new playlist when in shuffle mode.

When you insert, it simply inserts (doing exactly what you told it to do) and doesn't perform the deduplication.

If you are in shuffle mode already, and you insert a playlist that contains duplicates, I don't know if it dedupes the inserted content or not. But I know it doesn't dedupe the whole current running order on an insert.