I have a team in which I have set the Auto-Rest level to 98% for that particular level of ball (actually all of my levels are 98%).

It allowed one of my prize prospects to continue playing even when he was at 93%. 

What am I doing wrong that allows the Sim to continue to think that those players should be played, instead of rested?

Check your player rest hierarchy at that level.  One of two things is likely - either he's the only one listed at that position, or you've got a bunch of guys that are below their auto rest and the ones on at his position are getting used at other positions first.

or you have a guy listed on the rest hierarchy...but he isn't listed to play at that position

It appears that I didn't have a "non-starter" listed behind him in the rest heirarchy.  The other 3 players behind him were starts in RF, CF, and SS.  I signed an IFA, placed him right behind him in the hierarchy and the sim finally benched him. 

I've struggled with figuring that out for about 6 seasons now...  glad to know that it actually works, as long as I've got someone there available to play that position.