This is the first report we've received of reorganizing Chapters not working. I just double-checked 1.0.6 and it worked as expected. We're not sure how the issue could occur at all because the order in which the Chapters are displayed onscreen and the order in which the data is exported to the final output are based on the same behind-the-scenes data structure - essentially a list that we read from, in order, from start to finish.
This might involve an issue with the way Audiobook Builder accesses the original audio files on disk, but you could easily check on that by pressing the Show Details button at the bottom of the Chapters list, selecting each Chapter one at a time and pressing the round Preview/Play button at the bottom of the window. If the audio you hear is appropriate for the selected Chapter my next guess would be a mixup in iTunes where the first Audiobook was mistaken for the second - made somewhat easier by the way each unique track names aren't required in iTunes, so they can all have the same name, making it difficult to tell them apart. It's also quite a bit easier for us when we're testing because we tend to sort our tracks in iTunes by Date Added and when a new track is added it ends up just above the visible portion of the list - requiring us to scroll one line up to see the newest test output.
We'd be happy to try to reproduce the issue here but we'll need your Project to do so. Would you be willing to compress it and send it through a file transfer service like
http://yousendit.com ? If that's OK, select the Project document in the Finder and compress it by choosing "Create Archive" from the File menu, then follow the directions at
http://yousendit.com to upload the file so we can access it.
iTunes 7 moved the Chapters menu from the right of the timeline to the actual menubar at the top of the screen, to the right of the Window and Script menus. The menu should only appear while a chaptered file is playing or paused, so you'll need to start playing an Audiobook in order to see the menu.