I recently contacted Steam Support about the issue saying,
"I apologize if this query is directed to the wrong place, but when recently playing Plants Vs. Zombies: Game of the Year Edition, the game asked whether it should load save files using Steam Cloud or Local Files. Local was chosen and the game was played. The next day (today) the game was played again but it acted as if there were never any save files and asked for a new name. It seems as if Steam Cloud and a recent update to the game are the cause of this problem. Is there any way to bring back my save files or have they been deleted forever? If it's the latter, then I have to say that I'm extremely upset with Steam and PopCap Games for releasing what I consider to be a game-breaking update and I even think a refund should be offered since I don't know if I can trust that this product will not lose it's save data again, thus making the game unplayable. "
Anyway, they replied a few days later with this:
"Thank you for contacting Steam Support. To ensure the best experience with Plants vs Zombies GOTY, please first launch this title from your machine with current saves. This will allow the Steam cloud to sync with your current save files rather than creating a new file. Loading from a machine with no save files may cause a loss of all current data when launching the game from your machine with current progress. Once your game has synced with the cloud you will be able to access your progress from any machine. Unfortunately, if your saves have been deleted, there are no options to recover them. Let us know if you have any further questions or concerns. "
I didn't start with any new file so I don't know what they're saying with that, but what matters is that it looks like there is no hope for getting back any of my saves. No word of any reimbursements of any kind either.