Well, I sent the camera back. It returned to the store and they said everything was working fine. Canon replaced the top cover (flash assembly), the PCB motor drive and bottom plate (??). This is after they replaced the main dial, main PCB (printed control board) and top cover on the previous service.
Went to pick up the camera and they said they played with for a while and it appeared to work. I played with the camera in the store and took three pictures. The first were fine. On the third attempt the flash stuck down and was going to flash closed. AHHHHHHHHHH!!!. Took a picture for yuks and what a great plastic burning smell. They loved it at the store and could not believe it was still happening. It was very intermittant but I was able to reproduce the issue numerous times for the store owner. As for the cause of the issue. I still have no answer. I suspect that when they put the camera back together the first time that something was slightly out of line. Not visible to the eye. I found that the issue re-occurred depending on how I pushed the flash down. My guess is that part of the flash would get stuck on the body ever so slightly.
The good news - The owner called her Canon rep with my tale of woe. She had originally said that she was going to send it in again. I told here I was leary because they have essentially replaced all the inner parts of the camera. I would also feel uncomfortable selling the camera to anyone after it comes back knowing its problems. She agreed. Canon authorized a return of the camera and authorized a free replacement with another XT. I of course looked at this as an opportunity to upgrade. For an additional $200 I was able to get the XTI (It was $200 because they are announcing a price drop on the XT soon, I guess its run is about over). I felt it was worth it for the additional screen size for chimping, the added focus points, the sensor cleaning option and another year of warranty. Lets not forget that I got over a year and one half of service from the old camera. My first picture IMG 0001. I'm happy and I have a brand new camera. Thank you Canon.