No solid ideas on why this is happening (I've done modules with mod_perl and plain CGI, but never worked with Apache::Registry), but a couple ideas which might make your script work, or at least provide useful new information:

• Put a set of {braces} around the body of your script so that %vars will go out of scope between requests
• Try explicitly setting my %vars = () before initializing it from $query->Vars()
• If you don't have a strong need to pull your CGI parameters in with Vars(), try dropping %vars entirely and using $query->param('action') instead