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As a user that is relatively new to PDMWE, I discovered about a month ago that I was working with outdated models when I didn't have this setting enabled. The importance of this setting grows as more users are actively working in the vault and collaborating.
My guess is that by opening the file via SW, your user was using the MRUD (most recently used documents) section of the File menu. Since SW is not 'aware' that PDMWE is controlling files, opening files in this manner probably points directly to the file in your local cache - bypassing PDMWE as if you were working offline.
The "Always work with the latest version of files" setting apparently only applies when opening files via the PDMWE interface. That is likely your workaround.
Ideally, by enabling the option, PDMWE would lock out other means of opening the files if it can't enforce the option other than via the PDMWE interface. An enhancement request, maybe?
Thanks for the thoughts.
As I had stated, the user did not use the MRUD - he specifically used the File/Open dialog box, which PDMWE is certainly aware of. Have you checked to make sure that a file someone else changes shows up for you without specifically telling it to get latest version? Are you on PDMWE 2008?
My apologies - didn't read your original post closely enough.
I am on PDMWE2008 - I'll try to simulate the File/Open scenario with another user based on your process and get back to you...probably Monday now that it's 5pm Friday :-)