When making a direct connection from ArcGIS 10.1 to an Oracle database or geodatabase using the tnsname, pre-10.1 syntax is appended to the tnsname after clicking OK on the Database Connection dialog box.
For example, if the tnsname of the Oracle database is myora, type myora in the Instance text box of the Database Connection dialog box. After clicking OK and the Database Connection properties dialog box re-opens, the text in the Instance text box has changed to 'sde:oracle11g:myora'.
Unfortunately, this leads people to believe that they should type the old syntax in the Instance text box. However, if sde:oracle11g:<tnsname> is typed, 'sde:oracle' gets appended to it.
For example, if sde:oracle11g:myora is typed in the Instance text box, ArcGIS tries to connect to 'sde:oracle$sde:oracle11g:myora'.
At 10.1, the Database Connection dialog box is simplified, so that the instance parameter only requires minimal information such as the tnsname or Oracle Easy Connect string for the database.
To allow upgraded systems to continue using older Spatial Database Connection files (*.sde), ArcGIS passes the older syntax when making a direct connection to Oracle.