With version 1.2.0 the option ref of the file source was removed and a new option mode was introduced. see
XD-2850 and PR https://github.com/spring-projects/spring-xd/pull/1624.
This means you have to destroy all streams using the ref option before you do an upgrade.
It would have been much better to leave the ref option in the code and emit a deprecation warning if it is still used. This way an upgrade would be possible without interruption.