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The reason it does not interrupt the entire circuit is that electrical code requires that each outlet be fed by "pigtails," and not be directly wired to the circuit. A pigtail is a short wire that connects to the line splice inside the junction box. As such, for each splice in a simple, single outlet box in the middle of a circuit run, there will be three wires going into each wire nut: the (1) incoming and (2) outgoing wires for the circuit (which maintain the circuit even if something goes wrong with the outlet), and (3) the pigtail (which goes to the outlet). For a simple outlet, there will be three wire nuts: one hot, one neutral, and one ground.
That way, if something goes wrong with the outlet (as happened here), it only affects that outlet, not the entire circuit.
[This message has been edited by Lawrence (edited December 27, 2003).]