Odd behavior after 3.9.7 upgrade when putting files in local folder

I am seeing some odd behavior with my installation after the 3.9.7 upgrade.
When putting files in the local folder, they are not replacing the files in the share folder.
For example, at the simplest form for example purposes.
If I put a new bpslogo.png file in the local/html/NoAuth/images folder and restart apache, I am not seeing the new image appear on the site.
If I delete the bpslogo.png file in share/html/NoAuth/images and restart, I get the missing image icon.
If I then copy the file from local to share and restart the new image does appear.
I am also seeing the same for custom files that I am putting on the server. For example local/html/Ticket/Elements/Tabs
Is anyone else experiencing this behavior or is there perhaps a new configuration setting I am not aware of?

RT 3.9.7 on Ubuntu 10.04/Apache2/MySQL5.1/fastCGI

I have also tried using develmode = ‘1’ with no success.

Jeff Stark
Sr Saas Engineer
Moxie Software