I think I've finally cracked this one...
Kevin (thanks for sticking with this issue), it is as you say, something to do with the layer plane settings and I believe this is it......
I assume you have opened a 'blank' doc and tried the exercise without problems. This seems to work because the defaults on the layer you are drawing on are 'out of the box'. Most users will change the settings as appropriate for their Industry.
Try this - In the layer plane settings, set the layer elevation to anything but the default 0. Keeping the view to layer plane, try the square>2 lines>group flip test again. It splits!
This is why both you and Marissa have (correctly) concluded its a specific file issue. I had set my blank.sta file to values above zero. On testing the options, it seems its the height above ground plane rather than other parameter - (say) the layer wall height - that influences this.
BTW - if you check the layer from front view, you will see the geometry has been drawn upon the zero ground plane (as you would expect with 2D creation) - so nothing untoward in that respect. I also find - in limited testing - that the culprit is the rectangle as it doesn't seem to happen with other shapes.
Do you find this? If not, please let me know what your findings are. If yes......
@Marissa Farrell
I believe this is a bug. Maybe the one you were talking about? 2D objects drawn on the layer plane should 'forget' any height reference the plane has.
Thanks both.