Also conflicts with CCK field validation. . .

. . . as in if I have a CCK field type which has validation built in, say a UK phone number.
If I enter an invalid phone number the CCK validation catches it and fills the popup-subedit witht he full node edit form.
Where again, I can make the necessary changes, save, get the previously described "Bad response submission form" message and eventually get to the updated node page!

I'm sure all this stuff is linked and you're real close to cracking it, or you've found a crackpot here who has some totally non-standard module messing with yours or something. . .