The distortion is probably caused by the input stage of the receiver being overloaded.
I started my reply with "in theory". In practice, the output stage of the transmitter will leak some RF, and even with a perfect dummy load connected to the output, and even with very good shielding, *some* RF will get through.
In your case, you may well find that leakage (possibly even from the dummy load itself) is causing your problems.