I am pretty sure I am not doing anything wrong (except trying to get work done with LPCXpresso maybe ;p ).
I tried reproducing the corrupted project state and found i can easily get there in a few steps , see pic
1. (first 2 images in pic) Start condition is OK, both FW_Receiver (project) and boardspecific (subdir) have the good architecture
2. I go to the preprocessor option of "boardspecific" subdir properties and select 'preprocess only', and press apply and close properties.
3. I open the boardspecific subdir properties again and go to the same settings and press restore defaults. Preprocessor only is not checked anymore (which is good).
4. But if i go to architecture i now have an ARM7DTMI architecture selected.
5. Sanity check in last pic, if i go to project level properties it is still cortex-M0. You can also see project structure here, and that the 'key' icon is present for boardspecific indicating that it is not in sync with the project properties.
So it is restoring to some defaults, but those defaults are not the project level properties but some unknown properties.
Now in your case, maybe it works because the defaults match the project properties, but obviously not in mine....