I'm not using Smack and Openfire as a standard XMPP client. It is being used as a private network message transfer system. It won't be public, standard XMPP clients won't be able to read messages (the content will be PGP encrypted) and if they do consume messages then it would mess things up, I have a stateful messaging protocol in place. I also don't want people having to dream up their own usernames.
I don't really understand what has changed. In 4.0.4 using the escaped full email address worked fine. Openfire has a user with username "gary@quollwriter.com" and that has been working ok for months. Only when I changed to 4.1.0 did it break down.
I'm not sure I follow your escaping instance there, the escaping is there to provide substitutions of special characters so gary@quollwriter.com should become (and does) gary\40 quollwriter.com. When I create the user in Openfire I am escaping the email address/username so I'm sending gary\40quollwriter.com however in the admin browser it shows up as "gary@quollwriter.com".
I have tried with a standard username and that works fine and as I mentioned further up, if I change the @ to a ! then it works with no problems.