Bug indeed, but since I am stuck on 10.0 for another year the 10.1 fix didn't help me yet. Since this is still one of the first results on my Google search for the topic, I thought I'd come back and add my answer.

The workaround here solved the issue for me. To summarize, save a reference to the layer, remove the later from the map document, update the data source, and re-add it.

I was unable to replace CAD sources properly, but ended up using the 'NONE' keyword for the workspace_type parameter and it looped through the sources in the new folder until it found one with the name specified. Workaround to the workaround?

Bug indeed, but since I am stuck on 10.0 for another year the 10.1 fix didn't help me yet. Since this is still one of the first results on my Google search for the topic, I thought I'd come back and add my answer.

The workaround here solved the issue for me. To summarize, save a reference to the layer, remove the later from the map document, update the data source, and re-add it.

I was unable to replace CAD sources properly, but ended up using the 'NONE' keyword for the workspace_type parameter and it looped through the sources in the new folder until it found one with the name specified.