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What I did was to select that thread and forward the latest message to a test account, logged out and the logged in to the test account, replied to the message and logged out.

When I logged in to my own account, I went to my inbox and took the screenshot of the list of message threads. The thread highlighted was the incoming message from the test account. The thread position in the list is exactly the same as before sending or receiving messages and the only indication that there was a new message was the change of text colour of the word 'Subject'.

Yes, the drop down box is there and the threads are listed in the same order as the screenshot. There are just 5 threads listed and as the one with the new message is below those it doesn't show.

Yes, the 2 immediately above.

The other 3 are recent additions since the update. On those, I've noticed they only move to the top if I add an outgoing message, if they are below the top message when a new incoming message arrives they stay in the same position in the list, they don't move to the top.