A workaround you could think about is invoking the LO functions via ordinary SELECT commands, ignoring libpq's LO API altogether. This would have been rather painful in pre-7.4 releases since you'd have to be willing to deal with quoting and dequoting "bytea" values, but as of 7.4 you could use PQsendQueryParams() and specify binary format for the bytea inputs and results.
I think I'll go down that road provided it's not a performance killer.
I'll also be considering using a custom perl-socket-server system I implemented for kicks (it's put up at http://uti.is/david/320_maintserver_procs.sql, BSD license). It does gzip of the steam for free, which is a win.
d.
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