"how the heck are we supposed to correctly allocate the income"

In general, you don't try to take the State reported amounts and expect them to add to 100% or to the Fed amount. Some States expect you to report the total (same as Fed) and handle the presence test later. Some will accept only the amount allocated on the W2 by the payroll service, who typically do this very well and don't need to be overridden by the tax preparer. Some will credit back taxes paid in another State, and some have a reciprocity agreement, and some will tax anything they can, and some don't tax anything.

"when the PY Allocation Worksheet creates duplicate income when allocating the income to the correct resident state."

Are you sure that is how each State wants it to be reported?

"when the PY Allocation Worksheet creates duplicate income when allocating the income to the correct resident state."

I don't see where the other State is named. It seems your person is not a teleworker, then; they were a MD resident. Yes, they should have notified payroll accordingly.