Well I confirmed that closing down raw sockets does effect the client.
I suppose I could have did more work then uninstall the socket locks and just punched a hole somewhere for xLobby to connect but alas it's all too confusing to me.
http://www.grc.com/dos/sockettome1.htm is the page that talks about XP raw sockets and their inherent dangers when opened. Now I will say one thing. Sage never had an issue with sockets being closed. So perhaps in the future we can find a better way for the client to connect to the server.
Stuart