For what it's worth, I always took 'all but' to mean the opposite of what people who use the term intend to say. So when someone says "they were all but wiped out", usually the context around the statement will clarify that the user intended to say "they were completely wiped out". Which is not what I heard them say when thet said "the were all but wiped out".
In short, I agree with Martin and conclude that this is an expression that is misunderstood by most who use it, and consequently they misuse it.