Milestones met w/ negative float during leveling

I am running "P5" and have created a resource leveled project. The project has multiple intermediate milestones with "Finish on or before" constraints. I’ve set the project to run based on pure network logic, limited only by max units/time for any given resource. In other words, given unlimited resources, the project shows that it can be completed much earlier than in reality. By leveling, however, priorities are set to total float, then early start, and finally by activity priority code. In the leveling resources box, all options remain unchecked.

Here’s the problem: When trying to optimize(read minimize) my resources throughout the project, at some point I end up in a situation where all my constraint dates (intermediate milestones) are being met, but "pockets" of activities are showing up with negative float. It would seem to me that the activities would just slip to later dates until the milestone dates were violated, then show negative float. Instead, dates for activities remain relatively the same and negative float pops up.

Can anybody shed some light on this?