My d3 screen was not working properly (all white and fuzzy image) so I sent my unit back for service since it was still under warranty. I only removed the d3 itself and not the wiring harness or any other wiring. Now after reinstalling the d3, the bypass no longer works. Any chance pioneer updated something so it would not work anymore?

No, there's nothing to update really. My guess is you knocked something loose during removal... either the parking brake or mute wire came loose from it's ground, or maybe the pin for the relocated mute wire came loose in the harness.