I found the line of code, it was in the Localization.vb class:

Private Shared Function TryGetFromResourceFile(ByVal key As String, ByVal resourceFile As String, ByVal portalID As Integer, ByVal resourceType As CustomizedLocale, ByRef resourceValue As String) As Boolean Dim dicResources As Dictionary(Of String, String) = Nothing Dim bFound As Boolean = Null.NullBoolean Dim resourceFileName As String = resourceFile Select Case resourceType Case CustomizedLocale.Host
                    resourceFileName = resourceFile.Replace(".resx", ".Host.resx")
                Case CustomizedLocale.Portal
                    resourceFileName = resourceFile.Replace(".resx", ".Portal-" + portalID.ToString + ".resx")
            End Select

            If resourceFileName.ToLowerInvariant().StartsWith("desktopmodules") OrElse resourceFileName.ToLowerInvariant().StartsWith("admin") Then
                resourceFileName = "~/" + resourceFileName
            End If

            'Local resource files are either named ~/... or <ApplicationPath>/...
            'The following logic creates a cachekey of /....
            Dim cacheKey As String = resourceFileName.Replace("~/", "/").ToLowerInvariant()
            If Not String.IsNullOrEmpty(ApplicationPath) Then
                If ApplicationPath.ToLowerInvariant <> "/portals" Then
                    'If the ApplicationPath is /portal, this next line of code will
                    'mess up the resx path to DesktopModules\Portals modules.
                    'Actually, it could clobber any DesktopModule names!
                    cacheKey = cacheKey.Replace(ApplicationPath.ToLowerInvariant(), "")
                Else
                    cacheKey = "~" & cacheKey
                    cacheKey = cacheKey.Replace("~" & ApplicationPath.ToLowerInvariant(), "")
                End If
            End If

            'Get resource file lookup to determine if the resource file even exists
            Dim resourceFileExistsLookup As Dictionary(Of String, Boolean) = GetResourceFileLookupDictionary()

            If (Not resourceFileExistsLookup.ContainsKey(cacheKey)) OrElse resourceFileExistsLookup(cacheKey) Then
                'File is not in lookup or its value is true so we know it exists
                dicResources = GetResourceFile(cacheKey)

                If dicResources IsNot Nothing Then
                    bFound = dicResources.TryGetValue(key, resourceValue)
                End If
            End If

            Return bFound
        End Function

It's replacing ALL found occurences within the string, not just the appPath as intended.

This issue was not addressed in the 5.2 release, so I've submitted a patch for it.  I'll also post it here in case anyone else is interested:

 This replaces the entire section of code in Localization.vb around line 592.

'Problem:  If AppPath is /portal, there is a desktop module called portals, the path is corrupted
'Before: /portal/desktopmodules/admin/portals/app_localresources/sitesettings.ascx.resx
'After : /desktopmodules/admins/app_localresources/sitesettings.ascx.resx
'Revised Code: Replace AppPath only.
Dim cacheKey As String = resourceFileName.Replace("~/", "/").ToLowerInvariant()
With ApplicationPath 'When running DNN in web root, AppPath is zero-length string.
  If Not String.IsNullOrEmpty(.ToLowerInvariant) Then
    If .ToLowerInvariant <> "/portals" Then
      If cacheKey.IndexOf(.ToLowerInvariant) <> -1 Then
        cacheKey = cacheKey.Remove(cacheKey.IndexOf(.ToLowerInvariant), .ToLowerInvariant.Length)
      End If
    Else
        cacheKey = "~" & cacheKey
        cacheKey = cacheKey.Replace("~" & .ToLowerInvariant, "")
    End If
  End If
End With