Currently the overlay is only destroyed when calling $('#example').dialog('close') but not when calling $('#example').dialog('destroy).

However the overlay must be destroyed, when destroying a dialog! This can simply be acchieved by adding one line to the destroy-method:

this.destroy = function() {
			uiDialog.hide();

must become

this.destroy = function() {
			this.overlay && this.overlay.destroy();
			uiDialog.hide();

around line 276 of ui.dialog.js .