I agree, preventing me from switching to another desktop, as you described, would annoy me.
However, just now I tried to replicate your problem and I can't say I'm seeing it: the desktop switches perfectly fine, and the windows on old desktop become unhidden (as can be seen in desktop preview).
I think you just stumbled onto a bug
You keep mentioning how windows should be minimized - I just remembered that I was pissed off at windows for doing just that. What the UI would do, when I press "show desktop":
* all windows become minimized and the windows that could not be minimized would become HIDDEN
* if I open any new window, the windows that were HIDDEN would re-appear by themselves, but minimized windows would stay minimized
* pressing the "show desktop" button would again minimize all shown windows (not restore all others)
There would be no way to batch-restore the windows that were minimized. THAT was a pain in the rear, especially in the days of no tabbed browsing.
To me, the behavior in KDE seems much more natural. I would be pissed off if they change the current one.
As I said earlier, the functionality you're asking for seems like a perfectly reasonable request for a new applet (or a feature extension -- not a feature replacement -- to this applet). I might use it too - sometimes I want the windows minimized, too
By the way, what is this secondary applet feature "show all"? I don't remember seeing that anywhere...