Unfortunately it works for me.
Can you give me more details?
Where does the directory actually change? On file panel or directly on the 'Keep remote directory up to date' window?

Thanks. I'll try to reproduce it.

When for some reason, e.g. hibernating my pc, the connection with the server is lost while 'Keeping remote directory up to date', I get a dialog asking me to reconnect.

When I do so, WinSCP reconnects, turns on the 'Keep remote directory up to date' function again, but also changes to the default folder (as defined in the Session options dialog --> Environment --> Directories) regardless of the folder I was keeping up to date.

To me this seems not to be correct behavior. I use version 4.1.8 (Build 415)