ShortPixel,
Just to give you an update. I downgraded to several older versions and tested with the same results.
During testing I managed to narrow the problem down somewhat. It seems only some of the files in my media library have this problem. This is an older web site that has undergone more than a few updates and the old files in the media library are the ones that fail to be replaced. I wonder if something in the database needs to be updated.
Thanks again.