This one comes courtesy of fellow AUGI member patricks. He posted that he "discovered that sweeps with picked paths instead of sketched paths will not display a surface pattern when a material is applied. This occurs in both in-place families and regular families."
I was able to confirm this (with and without Web Update 1) and submitted a SR (Support Request) to Autodesk. Here's their response...
Thank you for contacting Autodesk Support. I have submitted this issue to our development team and will let you know their findings/recommendations as quickly as possible.
So for now, if you are creating a family with a sweep and want a material with a surface pattern, do not use the Pick Path option until we get a fix.
I'll post an update as soon as I receive one.