An experimental capillary-pumped loop (CPL) was designed to investigate the behavior of phase-change heat transfer devices and ascertain the mechanisms which have caused anomalous behavior of previous CPL demonstrations in low gravity. Low-gravity experiments were conducted during the Microgravity Science Laboratory (MSL-1) mission on-board the Space Shuttle Columbia in July of 1997. An interesting phenomenon resulting from liquid flow in an annular film was observed while investigating operation of the experimental CPL in low gravity. To the authors' knowledge, observation of this phenomenon has not been previously reported. In every test run performed, liquid would accumulate in the curved portion of the vapor leg. The accumulation of liquid would continue until the liquid lobe would suddenly transition into a slug of liquid. The liquid slug would prevent the flow of vapor to the condenser; eventually resulting in dryout of the condenser. Since liquid was no longer fed to the evaporator from the condenser, the CPL would ultimately fail. Analysis reveals that the formation of the slug is a consequence of both capillary pressure differences in the liquid film present in the curved section of the vapor leg and a long wavelength instability of the liquid film. This analysis also reveals the conditions under which the formation of such liquid slugs are inevitable.