The behavior is even more significant than initially recognized. You mentioned:
That is definitely incorrect. Even now, with Invert Only, the AC input and AC-Out1 are still connected. (Otherwise, there would be no way to use PV in Invert Only mode if the PV is connected to AC-Out1, as recommended by Victron for UPS.)
However, prior to the update, switching between “Charger Only,” “Inverter Only,” or “On” did not interrupt the connection between the AC input and AC-Out1. Now, any switch momentarily disconnects AC-Out1, causing the PV inverter to detect a power outage.