This is the expected behavior for that configuration.  The problem is that
since your component GUIDs don't line up from v1.0.0 to v1.0.1 the upgrade
installs the new components and then after InstallFinalize removes the old
components because it is not able to properly reference count them using the
component GUIDs.

You can work around this by sequencing RemoveExistingProducts between
InstallValidate and InstallInitialize.  This is a less efficient way of
upgrading as you are basically doing a complete uninstall and reinstall in
one session as opposed to just upgrading the necessary components but it
will solve your current problem.
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