As Valery already pointed out the symbilc engine in MC14 and above is muPad, the engine in older versions was Maple, considered by many users as the better one.
muPads behaviour is sometiome annyoing, while mathematically perhaps more correct than that of Maple. Maple obviously is implicitely assuming that X and Y are real values as most of us would do, too, as the "formula" for calculating the absolute value you have in mind is valid for real X and Y only:

So if you want to assume X and Y as real values, you have to tell muPad explicitely so. Additionally you have to demand muPad you want it to simplify the expression.

Maple assumed by default variables and results to be real values and you could change that by using the modifier "complex".
muPad (unfortunately!?) defaults to "complex" and making it think "real" can be quite a challenge sometimes.