I just tested it with next r550-g213893e and the code fix in reply #4 fixes the issue perfectly for me.
Make sure you replace the one line with the set of several lines. If you put the new code above the single old code line it will still break.
Then save the file. Then build the FC firmware you need. Then flash the new FC firmware. Settings are the same. No need to erase settings or change anything when you swap these firmwares. First time each flight, make sure you hover (no climb or descend) for a few seconds before switching into AH.
Is it very windy where you are testing? I wonder if that could have an effect.
I verified that it works correctly in 16.09
I verified that I can see the issue in r550 next.
I verified that after the fix, the issue is gone in r550 next, and it works as well as 16.09.
Tested switching from:
Attitude, Attitude, Axislock, ManualThrust
to
Attitude, Attitude, Axislock, AltitudeHold
in all cases.
Details:
I have adjusted my AH PID to some higher numbers, so it reacts more quickly. I enjoy flying that way because you can slam the stick around and it automatically applies full acceleration power or full braking power. When the issue happens it only drops 10 to 15cm, but you can see it unless it is climbing slightly when you switch into AH.