You set the data in the global scope with the return of the function.
Your unset function does not receive the array by reference.
See the code below, commenting out the reference makes no difference.

<?php
function should_not_alter($in)
{
    $in_ref = &$in['level1']; //try commenting out this line to see the output 
change

    should_only_unset_locally($in);

    return $in;
}

function should_only_unset_locally(&$in)
{
    unset($in['level1']['level2_0']);
}

$data[0] = array(
    'level1' => array(
        'level2_0' => 'first value',
        'level2_1' => 'second value'
    )
);

$data[1]=should_not_alter($data[0]);

print_r($data);
?>

@krakjoe

The problem is that a function where something is passed by value should never 
permute the value passed.

You would never expect $x = ...; function f($var) { ... } f($x); to change $x.  
That is unintuitive behavior.

A better illustration of it may be as follows:

<?php

function weird($arr)
{
	$arr['foo'] = 'baz';
}

$a = array('foo' => 'bar', 'moo' => 'cow');

//This will leave foo as bar, as is expected
weird($a);
print_r($a);

$ref = &$a['foo'];

//Now it will change foo to baz
//This seems like very unexpected behavior?
weird($a);
print_r($a);

@krackjoe, did you try running the code i originally posted both with the line commented out and not commented out? they should give the same result, regardless of the commenting out, however they do not.

thanks for your time.
peter