Thanks Gene. I will order this part and see if it fixes the issue. Two quick questions:
1. Though I think the flapper valves look ok, should I consider replacing them also?

2. I started using the F1 test cycle just last week when I saw the instructions sheet inside the dishwasher. At the of the test cycle, are there any status lights that are supposed to remain on? During the 7 or 8 times I have run the test cycle, when the cycle completes I never saw any lights being on.

3. One other observation. If I run another normal cycle after completing one with water still remaining in the tub, it goes through the first one or two steps (sensing, washing?) and then simply stops with couple of status LEDs flickering (not blinking) briefly just for a second. It looks as if power is pulled and a little bit of left over power from capacitors is randomly draining out. Even at this point there is no light remaining lit on the panel. It looks like the entire unit is powered down. If I open the door and close it again, normal light comes on.

BTW, yesterday night I verified this sequence one more time.
- Ran the dishwasher with dirty dishes using normal cycle. I could see water getting pumped out properly at different points in the cycle.
- When the cycle was complete, the "Clean" light was on. I opened the dishwasher and verified water was left in the tub inside.
- I started a F1 test cycle, skipped through all the steps except the last one. Pump ran pumping water out to the garbage disposal and stopped. No lights were on anywhere on the panel when the test cycle completed. No water left in the tub.

Ordered the switch. Will replace, test and update.

I have never taken the control panel apart so far. Is there documentation on how to replace the sequence switch?
Thanks for your quick replies.

Received the sequence switch I ordered. Replaced the old one with the new one and ran a cycle. Still see water remaining in the tub just as it did before.

Ran a F1 test cycle and skipped all the steps except the last one. Water got pumped out properly.
Thinking of returning the new switch since that is not the problem.

The top part of that solenoid appeared to have melted. At the bottom of the part, it looks like there was a little water a while back that has dried up now leaving a brown stain.

I didn't see the metal hook attached to the white plastic cam move at all during the entire cycle. But the solenoid or the parts nearby did not get heated up at any point in the cycle.

I am attaching a picture. If this part is what had melted, it would also explain the burning smell I noticed couple of weeks back when the problem started.

This part is the culprit. No doubts about it. Usually it happens because of a bad timer, so you may want to keep the new sequence switch installed.

- The drain solenoid assembly Part number: AP2039738