Rob and Journeyman,
Thank you both for your post. You both had a piece of the solution. Turns out that with the msgbox, I could verify that the values were being captured and changed. Meaning that it was reading the name of the variables from the last execution, it was finding the name of the file to change the variable to and it was actually changing the the value . All this without actually setting the variable.
When I went back and added the statement to set the variable (uncommented the statements provided in my first post), it "barfed" and failed the package. The problem was that I had delayed validation set to false. It was trying to connect to a variable datasource name that didn't exist yet.
Moral to the story...check your package properties and make sure they support the variable nature of your connection string. (DUH moment)