Problem Solved -- this error was entirely my fault.
I have a few old versions of 3D coat on my machine and it looks like I mistakenly ran an older build.
When I ran version 4.0.03 - things did NOT work properly.
However....
Once I ran build 4.1.17 everything worked as expected.
Sorry.... just a simple case of user error.
My apologies for the confusion.
Thanks for helping me out with this, I appreciate it.
Cheers,
Joe
3DTutorial's post in [Solved] Hidden geometry and cutoff tool - workflow problem was marked as the answer