A fix we had implemented in the RC2 release has been reverted in the RC3 release. So the duplicate field functionality is broken again. We are correcting this and will be releasing an updated 1.6 development release later today.
We will also be looking into how the file reverted, most likely an SVN related check in error. Either way if you are using Gravity Forms v1.6 you will want to update to the new release when it is available later today.