Is this intended or a bug?
I played a sample game today that included Vassal and Faithful Hound. It also included Imp, which I don't believe had any impact on this particular aspect of gameplay.
So I played an Imp, drawing my two cards. I then got to play an action of my choice, so I chose a Vassal. The Vassal turned up a Faithful Hound, which was discarded. I chose to set the Faithful Hound aside, which the game executed, but the game still offered me the option to play the Faithful Hound. So I tried it, and Faithful Hound played. At the end of my turn, Faithful Hound also entered my hand, giving me a six-card hand to start the subsequent turn.
I suspect this behavior is flawed, or at least not intuitive. I would think that if I set aside the Faithful Hound card on its effect, then when Vassal went to look for Faithful Hound in the discard pile, then it wouldn't be there, and I would be unable to play it. And if for some reason the Vassal could find the Faithful Hound to play it, then the card would no longer be set aside, thus making it unavailable to join the subsequent hand.
But I tend to get royally confused with these "lose track" issues, so perhaps I've misunderstood how this works.