Yes, the EntityManager becomes disconnected when there is a connection error or if the server throws an exception. Did you implement any server-side logic (e.g. in the EntityServerQueryInterceptor or InvokeServerMethod)? On saves, the EntityServerSaveInterceptor and Validation logic is also triggered.
You should not specify the ServerEncryptionKey on the client.
Can you open up a support case and send:
1) Server-side configuration files, and server-side debuglog.xml when the error occurs
2) Client-side configuration files, and client-side debuglog.xml when the error occurs
Edited by ting - 25-Aug-2010 at 5:29pm