Yes, the picture indeed tells the story best, and this is not actually a bug in the "Yes to All" overwrite function. The problem is the way you are creating the .xtreme file.

When creating a theme package, you are supposed to zip the contents of the theme folder, not the theme folder itself.

So, for example, if the theme is in:

...\Themes\Foundation\

you should zip the files inside Foundation, not the Foundation folder.

What you are currently doing produces an archive containing:

Foundation\theme files

Then, when you import foundation.xtreme, Winstep is already extracting into:

...\Themes\Foundation\

so the files actually end up in:

...\Themes\Foundation\Foundation\

That is why it looks as if "Yes to All" is not overwriting anything. It is doing exactly what you told it to do - the new files are simply being extracted one directory level below the existing theme files.

Winstep already contains some special handling for this common packaging mistake when importing a new theme: if the expected theme files are not found in the destination folder but are found inside a sub-folder, it moves them up one level.

However, that corrective mechanism deliberately does not kick in when the destination already contains a valid theme, because doing so could potentially move old files from an already-existing nested folder over newly imported files.

So for updates, please create the .xtreme file correctly: open the theme folder, select the theme files and subfolders inside it, and zip those - do not zip the theme folder itself.

Your screenshot actually shows exactly what is happening: the files are being extracted into foundation\foundation.

Back in the v9.5 days, IIRC, the Themes tab in Preferences had an Export button that created the theme package for you, so this was never something you had to worry about. That button no longer exists, so theme packages now have to be created manually, and zipping the theme folder itself rather than its contents is a very easy mistake to make.

Thank you
Finally, I know. Such a tiny thing can cause more problems than expected. It's funny how many people downloaded all the updates I did and nobody said anything.
Should I re-upload all the updates?

No. If the user doesn't already have the theme installed, the built-in mechanism that handles this particular packaging mistake will move the files to the correct location automatically. The problem only occurs when updating an existing theme.