Overlapping windows

[MMcM@TITANIA.Oberon.Dialnet.Symbolics.COM (Mike McMahon)]

As you know, the Symbolics window system is one of the few left in
active use with such a strong association between "exposed" and
"uncovered".

Your Window-1 is not exposed.  It is doing its output to an off-screen
bit array and the screen manager is partially copying that.  Only the
screen manager does rectangle arithmetic, not the basic window update
mechanism.

Mouse handling only sees exposed windows.

If this functionality is important, you might be able to simulate it by
defining appropriate methods on your own version of a frame.  You'd need
to pass messages onto the right inferior, adjusting coordinates as
needed.  The actual presentation structure in Window-1 is intact.