Using the module inserter to update/replace existing modules erases the original modules

It doesn’t usually, are you sure they aren’t underneath the building (they shouldn’t be doing this either but it might explain it…). Are you using space exploration and in space?

On closer inspection it just appears to be a visual issue. Replacing modules will clear the machine module slots but not put the modules directly into your inventory either. After waiting for a while bots came and collected the old modules from the machine.

Yes, the modules won't be directly returned to your inventory because that would involve teleporting them across large distances, which is cheating :)

They should be visibly dropped on the ground around the machine, if they are instead dropped 'under' the machine (and are therefore impossible to see without removing the machine), then that is still a (minor) bug that I would like to fix, but I need more info such as a modlist or save to sync to.