Steven R -
There are 2 models of the inline unit, XPFM and XPDF. Only XPFM provides local control natively. The other model allows you to wire a local switch inline to ADD local control. That one also allows dimming, where I believe your's doesn't. The piece of printed scrap paper (instructions) that was in the package goes into short deatail about it. Your situation is frustrating becasue you actually don't need the features of the XPFM you need the XPDF with abiltiy to handle inductive loads.
As far as why it functions fine in HIGH but turns itself back on in Med and Lo, my thoughts are this...
Local Control functions by sensing load. When your fan is in Med or Lo speeds, there is inductive resistance placed on the line to slow the fan down. So, if you turn the fan off with X10, that command goes thru, the fan turns off, and then the resistance is what triggers the fan back on. In High, that is not present, so the fan goes on and off like you want it to.
The inline units are great tho... after I've put my 1st one in, I am going to do many more. Even gonna wire one into my cabinet-mounted microwave to control the lights there. Other cool ideas pending.