Grim Fandango/Fridge

Manny did something so bad in his former life he either had to slug it out on foot like Celso, be stuffed in a casket like Bruno, or work at the DoD. Manny chose "community service". Only chasing Mercedes did he bother leaving the city. Also, some souls choose to remain in the Land of the Dead because they either don't believe in the Ninth Underworld (like Membrio) or simply have it good.
- The DOD has been corrupt since before Manny worked there, as Salvador mentioned. Manny was probably a victim of the crooked plot: not a perfect soul, but a competitive one, and a good businessman. One that the big boss would like to get his hands on. Just a little messing with the files, and you've got an top salesman for eternity...

If Don Copal was taking orders from Hector why was he demanding Manny get premium clients or risk being fired? He must have known Manny had no means of doing so.
- It would be reasonable to assume Copal had no reason not to be hard on Manny for poor work, even if he knew there was no way for him to do better. Anything less than his usual hardass behavior would be suspicious. Alternately, he wanted an excuse to fire the guy.
Burning beavers (in't it a great name for a band?) are able to swim in a river of tar without setting it on fire.