I went back to Layouts 1.7 where there is no issue. Digging around I found that Layouts 1.7 generates class="row" whereas Layouts 1.8.x generates class="row-fluid" which distorts the layout as I indicated.
I was able to add the class "row" which gives me this goofy output on the front end.
But that extra class of "row" wins and my layout renders as intended.
I would consider your new behavior to be a bug because it creates front end code that the user didn't intend. Worse, this issue is created by an update to Layouts which messes up existing sites (script did not update my existing layouts to accommodate for changes in generated markup).
Since I have a workaround for my immediate issue I consider this ticket resolved. Please comment on whether you consider this to be a bug and plans before closing.