I, along with a friend, have tested the AP disconnect with 1.06 and the problem still exists. I have opened a ticket with support and included a video link demonstrating the issue. This occurs with the AP disconnect button assigned to a joystick button along with depressing the red "auto pilot disconnect" button on the side stick.
I was experiencing the same issues described in this post. I updated my FSUIPC to 7.4.11 today and it fixed the problem. Strangely enough, I wasn't notified about the FSUIPC update like I normally am for this latest version.