Symptoms
Empty String does not clear field values in Sharepoint from a workflow
Diagnoses
The update list item SmartObject Event doesn't pass the input values and properties to actual set the value to empty / blank / null
Only occurs when updating with a blank / empty string.
IF the list you want to update is on the same list where the Workflow is deployed then the List context > update list item (Not the SmartObject one) will work. In this scenario the list being updated is a different list.
Resolution
This is a product bug.
Workaround:
Update with a *space* instead of an actual empty value.