Copy Paste

mineralking
I've tried just highlighting, copying and pasting the part but I'm still hearing the underneath portion ... and the wav file it generates is completely separate from the rest of the track.

X3's editing behavior has changed significantly with the advent of Comp recording and editing modes and related changes to take lane management. One side-effect of this is that the old Blend/Replace editing preferences are mostly ignored now.
 
Pasting in the parent track with lanes not showing defaults to sound-on-sound/blend mode, placing the pasted clip into a new lane in parallel with existing material with both remaining audible. If you want the pasted material to replace whatever is there, do it with lanes showing. You can then merge clips by selecting them all and using Bounce to Clips which writes everything into a new audio file. But the beauty of editing in a DAW is that it's non-destructive so I would recommend leaving the clips separate at least until you're done arranging - if not indefinitely.