Not sure what is going on? I upgraded to the latest version 2.83 (from 2.79) and tried it again. Same results.
Trying to cut a circle 1.08" diameter with a 0.5" tool at X=0 Y=0 (center of work piece is already drilled out). Regardless of whether I select inside or outside the tool path always runs thru x=0.54 and x=-0.54 (like it thinks the tool has a diameter of zero)? What's going on?