The bug was that axiom generation was not enabled on last_index, so no axioms got created to constrain last-index.
With default settings the solver is now very slow on this example. It is related to that the smallest size of a satisfying assignment is above 24. Pending a good heuristic to find initial seeds and increments for iterative deepening, I am adding another parameter smt.seq.min_unfolding that when set to 30 helps for this example.
