Am I missing something simple here?

I don't believe you can do it in one pass. This works, but might be simplified?:

#! perl -slw
use strict;
use Data::Dump qw[ pp ];

my  @array = (['A','B'],['C','D'],['A','C'],['E','F'],['F','G']);
my %h;

for( @array ) {
    my( $x, $y ) = @$_;
    $h{ $x }{ $y } = 1;
    $h{ $y }{ $x } = 1;
}

OUTER:
for my $x ( reverse sort keys %h ) {
    for my $y ( reverse sort keys %h ) {
        next if $x eq $y;
        if( exists $h{ $y }{ $x } ) {
            $h{ $y }{ $_ } = 1 for keys %{ $h{ $x } };
            delete $h{ $x };
            next OUTER;
        }
    }
}

my @buckets = map[ sort keys %{ $h{ $_ } } ], keys %h;
pp \@buckets;

__END__
C:\test>1017261
[["A", "B", "C", "D"], ["E", "F", "G"]]
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