We have an x-files problem with our .NET application. Or, rather, hybrid Win32 and .NET application.
When it attempts to communicate with Oracle, it just dies. Vani
I´d suspect the oracle client to be honest. Had a problem which was similar in it´s frustrating nature.
If we installed on 64 bit machines the client would stop at start when connecting to oracle even though the app is 32 bit. We eventually tracked it down to the fact that a certain oracle client (Ora 10 had a problem with brackets in the path so a program running under program files would work under program files (x86) caused the crash. Updating the machine to use the 11G client fixed the problem but there were also some patches available from metalink which are not directly available. Whats strange in your case is that you get no exception but the behaviour of moving the application to a new folder fixes the issue in a similar way so it may be related.
ORA-12154: TNS:could not resolve the connect identifier specified or ORA-6413: Connection not open.
Useful links http://blogs.msdn.com/debarchan/archive/2009/02/04/good-old-connectivity-issue.aspx
Details from Metalink below.
Metalink Bug 3807408 Cannot externally authenticate user with quote in username
Description If an externally authenticated username contains a '(',')' or '=' then the user cannot be authenticated. Additionally if a program name / path contains these characters it may not be possible to connect . eg: Windows clients installed in a directory "C:\Program Files (x86)" fail to connect with ORA-12154: TNS:could not resolve the connect identifier specified
The hallmark of this problem is that the Net trace (level 16) shows the problem character/s replaced by a "?" in the trace.
Workaround For the authentication problem: change username, or do not use remote OS authentication for those users
For the program / directory issue: change the program/directory name