Hi Scott. Thank you so much for the ideas and suggestions. You are correct, the publishing process seems to be changing the script. But, interesting that you say you've seen odd things when using models vs straight scripts - this is actually a model. And not a problem we've had before our upgrade.
The uploaded/published .sde file works fine. And the database is registered with server. In fact, we've got many services already using it..
For testing I've created an extremely simple model that references sde data. For more information, I've attached the original model-as-script: SelectAlamanceToolFromServer.py.
And the model-as-script after publishing: SelectAlamanceCountyToolFromLocal.py
Note the drop of the sql server database and schema names in the published version.
Anyway, you've given me some ideas and information I can pass to our server administrators. And I may try publishing this as a script instead of a model and see if it makes a difference.
Thanks again.