If that were the case, than transponder signals would be reflecting off of objects all over the place and it would be impossible for any type of ground based IFF receiver to work. Think about it. If a missile or small aircraft were capable of reflecting AA612's transponder signal, than the PASSUR display would be constantly covered with bogus ghost tracks as aircraft crossed over other aircraft, antennas, buildings etc. If it is possible for IFF transmissions to bounce off of objects as small and as fast moving as a supersonic missile, than the TCAS system used in every commercial aircraft today would never work (or rather would give you almost constant alerts). Having spent many years operating a very powerful and very advanced radar system, I am still surprised how often my radar displays false returns. Even hundreds of miles over the ocean. It doesn't take much of a meteorological disturbance to spoof a radar.
"Especially since there are eye-witness confirmations of the 2nd object, the PILOTS of flight AA612."
Did you read what their eyewitness was? "It looked more like a rocket". That's it. And they were describing its smoke trail.
Any large object will suffice, especially objects that are naturally reflective. Thus, birds and bottle rockets won't do, but other planes and missles will. I can assure you the PUSSAR software will filter out the reflections occuring off identified objects. Low altitude is where everything essentially gets filtered out by the software.
Your postulation is why radar does not work at low altitude. Above 1000 ft, where are the reflections occuring? Only off other planes. If you are identifying all the other planes, you got the problem half solved.
Do you understand electromagnetism at all?
Do you understand the concept of radiated power decaying as the cube of the distance? A nearby object will reflect at a much greater power than a further one. A small object near a plane, with the appropriate impedence characteristics, can be a highly effective reflector. Buildings, mountains and other large objects further away will reflect with a much larger cross sections but the power of the reflected wave / signal is much lower at that point and hence, the reflected power can actually be LOWER than from a nearby much smaller object!
Have you ever taken an upper division physics class? I take it you have not!