Model-based light scattering spectroscopy (LSS) seemed a promising technique for in-vivo diagnosis of dysplasia in multiple organs. In the studies, the residual spectrum, the difference between the observed and modeled diffuse reflectance spectra, was attributed to single elastic light scattering from epithelial nuclei, and diagnostic information due to nuclear changes was extracted from it. We show that this picture is incorrect. The actual single scattering signal arising from epithelial nuclei is much smaller than the previously computed residual spectrum, and does not have the wavelength dependence characteristic of Mie scattering. Rather, the residual spectrum largely arises from assuming a uniform hemoglobin distribution. In fact, hemoglobin is packaged in blood vessels, which alters the reflectance. When we include vessel packaging, which accounts for an inhomogeneous hemoglobin distribution, in the diffuse reflectance model, the reflectance is modeled more accurately, greatly reducing the amplitude of the residual spectrum. These findings are verified via numerical estimates based on light propagation and Mie theory, tissue phantom experiments, and analysis of published data measured from Barrett's esophagus. In future studies, vessel packaging should be included in the model of diffuse reflectance and use of model-based LSS should be discontinued.