Hello Terry,
I think I have replicated what you are describing. I'll step through it:
1. I start with a non-radial counter-bored hole on a cylinder.
2. I pattern the hole longitudinally (I used a count of 4).

3. I suspect this is the part that you are getting tripped up on. Next, I select ALL of my pattern members and then pattern them laterally.

As you can see, I now have eight counter-bored holes in a 2D array on my cylinder. Another thing to watch out for, make sure you select the entire hole before patterning it (try using the Right Click > Select > Depression option). If you miss a face while patterning you could see the behavior you described of not cutting the solid.
Your approach using patterned solids is a nice workaround. If you are using SpaceClaim 2009 then the combine operation should be applied to all of your pattern members; if this is not the case, please send an example to our support email so we can fix the behavior. One thing to note, the holes produced by cutting away these patterned solids will not maintain the pattern relation.
I hope this helps,
James Saunders