I want to compare RS232 traffic between two scenarios. Feel free to skip the background and jump right to the traffic logs. Can anyone explain to me why I may be seeing differences in these scenarios?

History
I have been trying to debug some RS232 communication issues between a very legacy hardware device and an application running on a Win98 PC. The comms between this PC and the device work perfectly, but I have not been able to get success with any other setups (virtualization, USB Com Port Adapter).

I'll cut out as much of the history as possible. I have an application running on a Win98SE Virtual PC (Microsoft) and on physical hardware running Win98SE.

On the Virtual PC side I am forwarding COM2 traffic to a physical COM port, which happens to be a USB COM Port Adapter.

After disabling FIFO buffers, the port appears to work without a hitch. I can transfer files between the real Win98SE PC and the Virtual Machine over the com port using HyperTerminal.

I did some PortMon analysis, and I found that the application repeatedly sends a particular set of bytes, sending this sequence of bytes to the hardware, I get varying amounts of data sent back to me.

However, when I run the application on the Virtual PC, I note that the application does not communicate with the hardware, it reports communication errors, data does not update, etc.

Traffic Logs
Running PortMon on the real PC, I get this sequence of typical communication (this works):

19  2:17:20 PM  COMAPP  VCOMM_WriteComm COM2    SUCCESS Length: 4: 81 02 00 7E  
20  2:17:20 PM  COMAPP  EventNotifyProc COM2    VOID    : TXEMPTY   
21  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS EVENT   
22  2:17:20 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
23  2:17:20 PM  COMAPP  EventNotifyProc COM2    VOID    : RXCHAR    
24  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS RECEIVE     
25  2:17:20 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
26  2:17:20 PM  COMAPP  VCOMM_ReadComm  COM2    SUCCESS Length: 1: 06   
27  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS NONE    
28  2:17:20 PM  COMAPP  VCOMM_WriteComm COM2    SUCCESS Length: 4: 80 02 00 7F  
29  2:17:20 PM  COMAPP  EventNotifyProc COM2    VOID    : TXEMPTY   
30  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS EVENT   
31  2:17:20 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
32  2:17:20 PM  COMAPP  EventNotifyProc COM2    VOID    : RXCHAR    
33  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS RECEIVE     
34  2:17:20 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
35  2:17:20 PM  COMAPP  VCOMM_ReadComm  COM2    SUCCESS Length: 1: 06   
36  2:17:20 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS NONE    

Running PortMon on the Virtual PC, I get this sequence of communications (this doesn't work):

21  4:56:30 PM  COMAPP  VCOMM_WriteComm COM2    SUCCESS Length: 4: 81 02 00 7E  
22  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
23  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
24  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
25  4:56:30 PM  COMAPP  EventNotifyProc COM2    VOID    : TXEMPTY   
26  4:56:30 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS EVENT   
27  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
28  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
29  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
30  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
31  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
32  4:56:30 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
33  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
34  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
35  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
36  4:56:32 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS NONE    
37  4:56:32 PM  COMAPP  VCOMM_WriteComm COM2    SUCCESS Length: 4: 80 02 00 7F  
38  4:56:32 PM  COMAPP  EventNotifyProc COM2    VOID    : TXEMPTY   
39  4:56:32 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS EVENT   
40  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
41  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
42  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
43  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
44  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
46  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
47  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
48  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
49  4:56:32 PM  COMAPP  VCOMM_ClearCommError    COM2    SUCCESS NOERROR 
50  4:56:32 PM  COMAPP  VCOMM_GetCommEventMask  COM2    SUCCESS NONE    

There are some obvious differences:

1. The virtualized app excessively clears Comm Errors, when they don't appear to exist.
2. The virtualized app never receives RXCHAR, and thus never reads the 06.

I am very new to this kind of analysis, but what immediately comes to mind is that some of the signals (CTS, RTS, DSR, DTR, etc...) may not work with a USB COM Adapter, and perhaps the app requires these signals. Again, I'm no expert, maybe these signals are always required.

If I use hyperterminal to connect to the hardware, and send the same bytes I am capturing above, I do get the 06 response (among other responses), but the application does not recognize this.

I found this question, but it doesn't quite answer my question:
Disadvantages of USB to RS232 dongles