Greener you asked "When the wood is cut out of a structural timber (beam) as in the joint described above, in replacing the lost wood with the other half of the joint on the end of the adjoining timber do you retain all the strength and load carrying capabilities the main timber first posessed?"
Simply put, no. A common beam can have material removed from the center portion without great loss because the fiber is not highly stressed. The lower portion is under high tension so any cut fiber can not be replaced by simple plugging. The upper portion of the beam is under compression and plugging may seem to be a solution but you should realize that with a very long load duration and many moisture cycles the plug can expand and contract against the end grain of the timber creating a compression set in the plug and an increasing sag in the beam.
So I would draw a cross section of the finished beam and size the beam so I would have the required 5 x 10 between the housings and under the backing cut.
