I tried your code and it too only works if all forms are modeless. If a modal form is on screen it does not release.
I added code to check forms collection after releaseallforms() and it
shows that all forms are not released when the active form is modal.
Yours does not hang due to iterating through the forms collection
for i = 1 to _screen.formcount step -1, but it does not shutdown either
unless user interactively closes the modal form. I am looking for a way
to programatically close a modal screen when a user leaves for the day with a modal screen displayed.

procedure	TerminateApplication()
	=ReleaseAllForms()
	clear events
	on shutdown
        quit
return

procedure	ReleaseAllForms()	
	local i, obj

	for i = _Screen.FormCount to 1 step -1
		obj = _screen.Forms[i]
		if( type('obj') == "O" )	&& may have disappeared
			if( pemstatus(Obj, 'Release',5) )
				=Obj.Release()
				obj = .null.
				release obj
			endif
		endif
	endfor
		=strtofile("Forms collection "+chr(13)+chr(10) ,"shutdowntrace.txt",.t.)
		for m.xx = 1 to _screen.formcount
			=strtofile("_screen.forms("+alltrim(str(m.xx))+") = "+_Screen.forms(m.xx).name+chr(13)+chr(10) ,"shutdowntrace.txt",.t.)
		next
		=strtofile("End of Forms collection "+chr(13)+chr(10)+chr(13)+chr(10) ,"shutdowntrace.txt",.t.)

endproc
*---------------------------------------------------------------------------

I have a test program with modeless, modal, browse and message boxes to test this.
If you would like to take a stab at it, let me know and I can send it to you. I appreciate any help.

Elmer