I finally resolved the issue myself. Looks like a bug to me.
In my interactive form, I have a button associated to data connection EXTRACT which calls an rfc-enabled function module in SAP called Z_LEMS_EXTRACT. This function module returns a string result called E_MESSAGE.
The returned E_MESSAGE was then bound to a form text field.
The generated xml code defined the binding as
Z_LEMS_EXTRACTResponse\.E_MESSAGE
I had to manually change the xml code to
Z_LEMS_EXTRACT\.Response.E_MESSAGE
This was determined by referring to another interactive form that was created under a previous version of Live Cycle Designer and a previous version of SAP, It used "\Response." and worked properly. So I applied the same coding here and it works.