I still have a paper licence (no photo).
I would expect DVLA to replace the licence and demand that I supply a photo for a new one. This happened to a colleague of mine who was "not at all amused" by it!
Alternatively I would expect DVLA to lose the licence - and then charge you for another one anyway!!
I would be surprised to get my old licence back intact. Pewrhaps their computers were down and this was the best way of dealing with it at the time?