Sean, I'm not sure I completely understand your calling pattern, but if you are indeed looping back to web services on the same box, you might be running into the infamous loopback issue: serverfault.com/questions/32345/ie-8-aut... In short: executing hostname-based HTTP calls that loopback to the server from which they're issued can get blocked. If the loopback issue is in-play, you'll be able to call the web services in PROD from another box ... but not from the PROD box itself (i.e. , looping back).
I think this is consistent with the behavior you described above. If Windows patch levels are different between your environments, it might explain why your code is failing in PROD but not in your other environments. I hope this helps!
This probably is not the problem, but is your reference to the web service pointing to the production server correctly. I had a problem before when trying to access a SP service that was referenced incorrectly. The dev server I was pointing to was on a seperate domain and could not be found.
Regarding the update to your question about the unauthorized error using the object model: Depending on the context that your code runs in you will sometimes need to elevate privileges. See this Elevation of Privilege MSDN article for details (also note the community comment at the end). There's also a Visual How-To.
Another method is to create a new SPSite object using a SPUserToken object. There is more information in this blog post by Daniel Larson. For the system account this would be done with the code: SPSite site = new SPSite(SPContext.Current.Site.ID, SPContext.Current.Site.SystemAccount.
UserToken); By the way, this would be better in its own question next time so that it can be correctly voted and answered.
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