After sending my vehicle in for service for the second time in the first week, the word from the dealership is that on the 2003 Xterra the compressor does indeed run all the time. Simply turning the temperature control to cold result in cold air through the vents, without the A/C button being "ON". Any time the fan is turned on, the compressor runs.

I haven't yet had a chance to talk to anyone with half a brain but at this point all indications are that the A/C button has no function at all on 2003 Xterras. In addition the manual's description of heating/cooling/defrosting is completely contradictory to reality. I'm supposed to get some official explanation from Nissan Consumer Affairs in the next couple of days.

Needless to say I'm pretty disappointed with this whole situation and wish I had kept my 2001 Pathfinder.