For anyone still interested, the story is getting more refined....

I just returned from another local dealership service department and finally someone is on my side.

After explaining the whole story, and including the info I've gathered from people here, the service manager agreed we should try a few vehicles so off to the lot we went. After testing 3 different 2003 Xterras the results were interesting.

On 2 XE (manual) models the A/C button did indeed control the compressor function as explained in the manual. In addition turning to defrost engaged the compressor as explained in the manual. These 2 vehicles were operating, what I would consider, correct.

On a SE model, along with my own vehicle, the A/C button did not have any discernable function and the fan control alone would toggle the compressor on and off. The defrost mode appeared to have no impact on the compressor.

The service rep agreed this is strange and nothing they've encountered before. He also agrees the recent service bulletin does not apply, since it explains the operation we saw on the XE model exactly.

At this point his only idea is a difference between XE/SE or manual/automatic. However at least one response on here was from an SE owner with the "correct" operation.

They are now escalating the issue to Nissan techs to figure out what is going on. From the existing technical documentation there is no difference in A/C units between models, etc.

Getting someone to agree there is an issue is half the battle. I'm glad the first half is over.

Thanks for the feedback to everyone on here.
Kurt