I can't reproduce this at all.
The behavior I get is that in step 5 if you press Ctrl+V nothing happens (no delay, no pasting) and if you right click the context menu entry for "Paste" is greyed out (since X released ownership of the selection).
So, what version of Windows are you running and are you doing anything with multiple languages or locales?
Microsoft Windows XP Home Edition Version 5.1 (Build 2600.xpsp2.030422-1633: Service Pack 1)
As for languages & locales, not aware that I'm doing anything strange. How can I tell for sure? I have got the "Standards and Formats", under the "regional options" tab of the "regional and language options" control panel applet set to english(UK) forcurrency, date,... formatting, but that's all that I know of.
Hmm... nothing weird about any of that. Please tell me you have rebooted since installing the new version... I want to make sure that there is no funkiness left over from the previous XWin.exe crashing and/or screwing up the clipboard viewer chain.
Harold