I'm thinking you changed the component guid for a file that is in both MSIs, older and upgrade. When the RemoveExistingProducts is towards the end of the install the upgrade behaves like a merge, overwriting files if necessary and incrementing ref counts for shared component guids. At the end the REP is removing the old product and decrementing ref counts for the component guids. If there are no more clients for the guid it will be removed. If the guid of a "shared" file changed it will have no more clients and be removed. The thing about an REP at the end is that you must follow component sharing rules, but you don't if you sequence REP at the start of the upgrade.
I'm adding an example for future reference.
Say the first install has 3 files A, B, C, and three guids that are 1, 2 and 3. Your upgrade has the same three files but the guids are 1, 2 and 8. When REP is at the end the upgrade installs over the old product first. Guids 1 and 2 get their ref counts incremented from 1 to 2. Guid 3 stays at 1. Then the older product is uninstalled. Guids 1 and 2 get ref counted down to 1, they are still in use so the files attached to the component guids stay. Guid 3 goes down to zero, has no ref counts so the component is removed, but it's attached to file C so C gets removed even though you just installed it.