There was one main person working on the documents and he had his "Enforce accents" checked on so he never noticed it. "Enforce Accents" is stored in the profile. When other users opened the documents and didn't have it checked they would not see the accents so that is why it appeared to propagate.

"Enforce Accented Uppercase in French" should not work but it does. The purpose of this feature is to mark uppercase accented characters as a spelling error when turned on and ignore uppercase accents when turned off. The "small caps" characters that were the problem should not even fall under this feature since they are not uppercase characters but lowercase that appear as small caps.

My theory is that the EAUiF prompts Word to go looking for uppercase accented characters and when it comes across the small caps it resets the character to it's proper form. So, the bug is still there but EAUiF gives some relief as a byproduct of it's process. But...if you turn EAUiF off it goes back to it's original state, which is not correct.