When you switch versions, are you performing the switch using the Table of Contents, or the 'Change Version' tool on the versioning toolbar?I've used both the Table of Contents and the Change Version button on the versioning toolbar, as well as using the Switch to New Version option when creating a new version from the versioning toolbar.
If so, when you execute the Select Layer by Location tool, be sure you are using the drop-downs to select the layers from the table of contents, and you are not browsing for the feature class.Yes, I was using only the drop-downs. I believe the Select Layer By Location only uses layers, so browsing to the feature class work work anyway I think?
If you browse to the feature class, and the geodatabase connection properties are set to SDE.Default, this will be the version used to perform the selection.
I had a similar problem today. Please check your ObjectID field if it is in the correct format....sometimes table join may screw this field in the Make Feature Layer process. Solution is to export data (using Select) to a feature class or shapefile and then use Make Feature Layer -> Select By Location -> Copy Features