Will talk in points:

# An existing OAuth app which already has xAuth access, works
perfectly in the implementation.

# Created a new OAuth app with Twitter. Got xAuth access for it
through email.

# Replaced the implementation's API keys to the new OAuth app's API

# Getting 401 error on OAuth echo attempt with Twitpic.

# If the original API key is used, it works fine.

# "Use Twitter for login" is checked in new OAuth app's settings.

# Requested Twitter to look if it really has access. They verified it
to have xAuth access.

Where's the catch?

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