I troubleshooted in RESTclient, doing a GET for the contact, and then PUTting their modified XML back with the new email address. I included the new email address in the PUT to try to reproduce what you're seeing, with a new contact getting created instead of updating the existing one, but that doesn't happen in my account. You are using the same contact ID for the contact, right?
Would you mind posting the XML you're using here, with your credentials and email addresses omitted? You can also email it to us at firstname.lastname@example.org so that we can take a look and try to reproduce what you're seeing.
API Support Specialist
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