Todd, thanks for your reply in my earlier post. We have found the root cause of our display names issue.
When users receive subscription request, the user defined nickname automatically defaults to the username instead of the nickname, and since user defined nicknames take precedence, there is our issue.
Where can I define (either client or server side) what populates this Nickname field during a Subscription Request?
*edit, we confirmed this because when we clear out the nickname field on a subscription request, everything works peachy. Thanks guys!!