I have noticed that too, it actually creates a pseudo named subset (you cannot see those subsets in the backend), and then it uses TM1SubetToSet to convert it back to an MDX expression.
But I have tried to create Universal Reports from scratch (its not the easiest process and we are still learning:) but the good news is that you dont have to populate all the cells in the hidden area, so the issue is more with the conversion tool of PAfE