Tom, thanks for the more in-depth explanation of what occurs during a connection and what changed in 10.1. I was generally aware of the differences between Oracle client libraries and Esri direct connect libraries, but I wasn't sure of how they interacted, especially in 10.1. My questioning and frustration were in earnest; I was trying to understand what changed in 10.1 and why I was seeing certain behaviors.
Your statement, "we only have 1 Esri library used to make the connection (which is based on Oracle 11g libraries)," is the most informative for me, and it will be good to communicate the Oracle 11g part of that statement to our organizations IT architects.