I have a sense everything is working correctly.
It's your query.
This is my query:
SELECT hs.FULLNAME place, sa.name state
FROM COM_GIS.tl_2009_pointlm hs, COM_GIS.TL_2009_US_STATE sa
WHERE sa.stusps ='DC' and sde.st_overlaps(sde.st_buffer(hs.shape,.01), sa.shape) = 1;
First you need to understand what your asking the operators and optimizer to do with your query...
You have two tables in your query tl_2009_pointlm (aliased hs) and tl_2009_us_state (aliased sa). You've set a predicate filter sa.stusps to return all tl_2009_us_state objects that equal DC (let's assume that's just one object).
That individual object is passed to the st_overlaps filter, sa.shape.
The st_overlaps operator can use the spatial index of the table in the first position, but you don't have a table in the first position. You have a collection of buffered hs.shape objects.
sde.st_overlaps(sde.st_buffer(hs.shape,.01), sa.shape)
You've forced the optimizer to first buffer (st_buffer) each object in the tl_2009_pointlm table (that could be thousands or millions of points - only you know the data). As each of those objects are buffered, they are next tested with the input sa.shape for st_overlaps.
Second, do you understand the definition of st_overlaps?
ST_Overlaps
ST_Overlaps compares two geometries of the same dimension and returns 1 or t (TRUE) if their intersection set results in a geometry different from both but of the same dimension.
ST_Overlaps returns 1 or t (TRUE) only for geometries of the same dimension and only when their intersection set results in a geometry of the same dimension. In other words, if the intersection of two ST_Polygons results in an ST_Polygon, overlap returns 1 or t (TRUE).
Therefore, when you buffer hs.shape does the output buffered object when overlapped with the sa.shape (DC) create a geometry that is different then both input geometries?
You may want to use st_intersects if your objective is to return all the hs.shapes that intersect sa.shape. That's only a suggestion not knowing what your true objective is...
Good luck.