Mobiletechworld reports that in their test of the latest version of the Windows phone 7 emulator, which includes Cut and Paste, it appears the issue of camera settings not being retained still remains.
He speculates that this indicated that this may not in fact be a bug, but a feature (according to Microsoft at least).
As we had learnt earlier, Windows phone 7 has a â€œConsistent Start Experienceâ€
â€¦whenever we click on an application from the Start it will always relaunch the application as if it wasnâ€™t already running. This means that if the application was previously in the background (or Tombstoned) it will be terminated and restarted. Alternatively, clicking Back to get back to a running application will return the application to the foreground in the state it was in.
Given that this is Microsoftâ€™s philosophy for Windows phone 7, and that they are not generally inclined to change their user experience, it may mean Microsoft does not intend to change this any time soon.