Thanks for suggesting affix, albert but I am afraid Nokia no longer updates the drivers.
Further to my above post, I have bought a new bluetooth 1.1 compliant CF card (Taiwanese brand Chronos
www.chronos.com.tw - repackaged Billionton/CSR/BCSP). I could connect the new card with my Z800i too at max about 13kBs (115kbps) BUT the same connection hang occurs like the Socket Rev E! I did go a further step and issued hciconfig hci0 while in the hang state, and discovered that I could get any response (connection time out from CF card). I could however eject/reinsert the card and reconnect through RFCOMM to the phone afterwards (so that could rule out problems with the phone's firmware as the phone is not in a lock-out state). Any suggestions whether it is a problem with bluez or usbdcore/usbnet as suggested some other forum threads?
I am reluctant to go out and buy a usb dongle just to try my phone on another machine. I also do not have another linux machine aside from my Z.