You said "moves to the next file". Well, that means you have a
playlist of more than 1 item. Read the operational description again,
especially the part that says:
When you turn on repeat, all items in the list pane will play once
and then begin playing again.
Notice the word "all". If you have 1 item in the playlist, "all"
items repeated will repeat that 1 item. If you have 10 items in the
playlist then all 10 play in each repeat (loop). The *playlist* is
getting repeated.
The only thing confusing about the "terminology" is that WMP doesn't
do what YOU want: repeat a single item from a multi-item playlist.
The repeat function works on the playlist, not on items within it.
Repeat works on the selected object. Your selected object is
apparently a playlist, not one item.
What happens when you right-click on one item in your playlist and
click Play from the context menu (instead of clicking the Play [All]
button that plays the entire playlist)? You're trying to repeat on
one item in the playlist, not repeat by using Play All for all items
in the playlist.