Metadata for an output shapefile created before ArcGIS Desktop version 9.2 does not update automatically when the data is projected to a new coordinate system.
This bug needs to be rejected outright.The problem was that in Metadata Properties for the shapefile > Options tab, the box labeled "Do not automatically update metadata" was checked. That property is inherited by the new shapefile created with the Project Tool, so the new shapefile metadata doesn't reflect the new projection. Unchecking this box resolves the problem.