Thanks for all the conversation. I am surprised that so far no one here has any authoritative information... you guys have such experience.
It's good to know that there are still some mysteries in the world to be solved... however, there are still a couple of Peugeot experts that have yet to find this thread.
I will examine the cork possibility (which I find elegant) later when I can remove the bottom bracket and see if it does the same thing going upwards.
Do you think I should get out my sawzall and open her up for science? I'm sure a cutaway section would put this mystery to bed once and for all!