Ok, it appears to be "skip comments at beginning of file"
If I turn that on/off, the problem comes/disappears. Oddly enough, I have to switch files to do this (using the "swap file" option in the diff dialog)
So, turn off "skip comments", it looks like it always works
Turn on "skip comments", it sometimes works, sometimes breaks. It's worse if "file1" is in path1, and file2 in path2, and better if I swap them