Thanks for checking this thoroughly. Interestingly this is exactly the way iOS auto brightness works where it tries to maintain the level the user sets under different lighting conditions.Autobrightness is working, but it does look like it works differently than it did in the past.
Before, if you had auto brightness on and the brightness (level) set to low, the screen would go from the lowest brightness to the highest brightness depending on the ambient light. As long as auto brightness was on, it did not matter what the brightness setting was. The screen would adjust from the dimmest to brightest.
Now, it appears that the brightness setting affects the bias of automatic brightness. For example, if I have auto brightness on and the brightness is set to low, the screen will not get bright enough to read in the direct sun.
I now have auto brightness on, and I have the brightness level set to high. All seems well.
Based on reading some user guides for WPs, I think this is the way it was supposed to work all along. So, it looks like auto brightness not only works; it works as it should.
Volume controls still don't work when the screen's locked, camera button still not waking up the phone consistently.
Sigh. Still, great they updated it somewhat.