Hi Laura:
That's a very clear analysis of the situation—and you certainly convinced me that my initial assumption was incorrect. I haven't see this behavior before. When you are ready, consider filing a bug report here: Tracker.
~Barb
Barb--
Without your suggestion, I wouldn't have done the analysis: thank you! I will file a bug.
The interim solution, however, is to select the book and all chapter files.
Then, click File > Print Book.
Select Adobe PDF for the printer (rather than a physical printer), set up the Adobe settings and the Printer settings, then click Print. Somewhere in there, clear (de-select) the box for "Print to File", which creates a raw .ps file of your book that can subsequently be opened by Distiller and converted to PDF, but save yourself those steps.
I'm off to file a bug.
Cheers!
--Laura