An update from me: looks like our file is back to LVO (as I wrote earlier it was sent to LVO initially, then I was told several times by agent that it was in transfer to CPP-O and then at CPP-O).
I got an email yesterday with the scan of the letter they mailed to us with medical request and police certificate request. The email did not include the forms for medical but said they mailed it to us (and sent a emailed letter scan to let us know).
So it seems that they do move soem cases back and forth - not sure why...
Do I understand correctly that we can not do medicals until we get the mailed forms?
I hope they actually mailed them as the mailing address on application is my Canadian address (I am a rep and my parents are currently visiting here in canada)...The letter header has my dad's name and my mailing adddress (which is correct) so hopefully they mailed to that one (the only thing is that it may take a while to get here from my parents home country LVO)
Another issue is that I already mailed teh police certificates a while ago to the LVO (without the request as I figured they woudl expire anyway potentially). However, they never confirmed to me if they received and accepted them (I emailed but they gave me a generic answer that if we did not request something you should not have emailed and they could be lost - but the wording clearly suggested that they did not actually check if they indeed got lost).
By the way, my parents' application ecas status actually changed to in process saying that they started processing the application on August 31, 2012...Looks like LVOs may follow a different sequence of status updates... (we have not done medical yet, waiting for the mailed forms as per tehir email)