You should be better off leaving the "extender" (noise blanker) on. Should be!
It is intended to help with that pulse noise (buzzing) you hear.
If the pulses are too long, it can't help.
In the early stages of the receiver RF signal is "split" to the receiver and to the blanker circuitry.
There is a short delay line in the receiver path that allows enough time for the pulse detect circuit to recognize the pulses, then function the "blanking" part of the audio path to blank the RX gain and thereby sort of shut off the receiver in millisecond periods. But its meant for very short pulses.
I would guess (and its just an educated guess) that the RX has a bad ceramic filter or crystal filter as suggested above.
The clipping you describe sounds like PL "talk off" to me.
Where the received signal is off freq, the "loud" audio becomes greater, and the noise + that audio makes the PL tone too hard for the radio to detect. Being off freq (or faulty receiver) causes exactly the trouble you describe.
I would try programming the RX off freq one step high, and one step low. 39.395 and 39.405 and see if either is better. If so, then your VCO may be off freq, or more likely the ceramic or crystal filter might be bad. The TX carrier and the RX carrier freqs can then be different when they are not supposed to be.
Won't hurt to try taking the radio apart, remove the logic board, and clean up the interconnect pins between the logic board and the RF board. Sometimes this fixes it.
I have worked on thousands of the Maxtracs, and the are durable little radios.
But once in awhile the ceramic or crystal filter gets broken.
I have seen that much more often in low band than any other.
CHP has a very robust TX system, so unless you are listening to a zone VERY far from you, the Maxtrac should work as well as their mobiles.