I agree completely with Marcoss. LS is a significant part of the biofiltration of a reef aquarium. A mature LS bed can provide up to 70% of the total biofiltration. Good LS is home to a plethora of bugs and worms which are food for coral and small fish, like Damsels(part of the reason it's digging).
Personally, I wouldn't go bare bottom just to reduce a sandstorm caused by a crazy digger Damsel. Instead, I'd consider several alternatives that came to mind, in no particular order:
1. Get a home for the Damsel. A large shell or two works nicely. Bury the shells halfway in the sand and enjoy the curiosity of these smart fish as this Damsel clears the sand out of it's new home.
2. Get a friend for the Damsel. I once had three Blue Devil Damsels in a 75 gal. Two had their homes in the sand and one in a large shell. They were terribly entertaining as they went back and forth with each other. I have a Tank of the Month picture here somewhere by master photographer, Mike Savage . Ah, found. See below. (My wife thought it entertaining to show family and friends the antics of our Damsels. With my "utility stick" she would bury the front door of one of the Damsel's homes, then watch and laugh as it quickly cleared the sand/crushed coral out of its doorway every time.)
3. Remove the Damsel. See the Reefkeeping Tips for the topic about easy ways to remove a fish without having to mess with the LR.
4. Add some Crushed Coral substrate on top of the sand. This can sometimes change the fishes behavior
5. Remove some of the finer sand and replace it with Crushed Coral substrate. (if you decide to go this route, I have crushed coral for you and can give you pointers on removing the fine sand with strong vacuuming.
6. Provide a stand of Caulerpa for the Damsel to play/hide in (notice the Caulerpa in the pics below)
7. I'd definitely give it a variety of food to include some of these; Caulerpa, Nori, Romaine Lettuce, Emerald Entree and Spirulina Flake. Good food can significantly improve a fish's behavior.
Yes, Damsels appreciate algae in their diet and in their environment.
Hope this helps. Hopefully, others here will post additional alternatives.
Aloha,
Mark
P.S.
Damsels are the perfect reef fish. Clownfish are in the Damsel family. What kind of Damsel is yours and may we see pics?
Damsel #1
Damsel #2 (or was it #1 protecting one of it's mates homes, I don't recall )
Damsel #3 in one of my own pics from earlier that same year.
Lastly, in case you're interested, the full tank pic with "yours truly" peering in from outside.
Edited by Mark Peterson - February 22 2016 at 4:04am