With the help of David Carlisle and Herbert Schulz, I've found part of the problem. For some reason, in the (our?) 2016 version, kpsewhich points to this hyperref.cfg file:
   ...texlive/2016/texmf-dist/doc/latex/listings-ext/hyperref.cfg
This .cfg file contains a \hypersetup{...} command that specifies 'ps2pdf'. Changing that to 'xetex' fixes the problem, at least for xelatex (I'm not sure what would happen with other flavors of latex). (Update: removing the line entirely, so it specifies neither xetex nor ps2pdf, works too, and presumably won't cause trouble for other latices.)

But:
1) Why does kpsewhich find that file, instead of this one:
   ...texlive/2016/texmf-dist/tex/latex/latexconfig/hyperref.cfg
   which does not have any \hypersetup{} command, and which would
   presumably not cause the same problem?
2) Why did this change from 2015 to 2016?  We did a pretty vanilla
   install, I think the only non-default choice we made was to use
   'letter' instead of 'a4'.
3) Is this a bug? (meaning should I report it?)

   Mike Maxwell


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