First off, sorry it took me so long to respond.
Nail said:
Errr??? Perhaps what you mean is: "Now that you've added some details, your question makes perfect sense."
Actually, I understood exactly what he meant the first time around.
Nail said:
That is to say: "OM allows you to hide in the square next to an opponent. If combat has not begun, and that opponent is flat-footed, you might be able to step into the opponent's square (via grapple or size Tiny) and sneak attack him."
I forget that not everyone uses the facing rules from UA and that not everyone is as loose in their interpretations of awareness of an attacker. This is my take on flatfooted and dex loss: You are flatfooted at the beginning of any combat encounter until you are able to act. This means that if you are surprised you are flatfooted until your initiative count comes up the round following surprise and it also means that even if you are not surprised you are flatfooted until you can act on your initiative count in the surprise round. (There are also a few other conditions that can cause flatfooted-ness). When you are flatfooted you lose your dex and it is the loss of dex that provokes sneak attack damage - hmm, that might be confusing word choice: it is the loss of dex that is responsable for the applicability of sneak attack. You can lose your dex in multiple ways though. I know this has come up where people are under the impression that sneak attack is impossible while in a grapple barring flatfootedness. That is not entirely accurate. All else being equal, S.A.'s are not possible in grapples after both grapplers have acted. However, there are multiple possibilities for sneak attacks within a grapple and I won't detail them all here. So now I come to your quote. While hiding, (if successful of course), your opponent is unaware of you. If your opponent is unaware of you, he is unaware of you in the sense of visually unaware and you would be considered to be invisible, meaning he loses his dex and you get S.A. This is true at the start of combat and at anytime during combat. If your opponent does not know you are there, he loses his dex against the first attack you make against him. In the case of a grapple, the touch attack is part of the process of grappling. Even though you make two separate attacks (a touch to initiate the grapple and an opposed grapple check to deal damage) they are treated as one - at least in my book.
Nail said:
You have concealment (a mechanical term within the game rules). This means that attackers have a 20% miss chance. If you have Total Concealment (another rules term), that miss chance rises to 50%. IOW, there is no such thing as "50% concealment".
Let's not get caught on semantics. Whether I use 3.0 or 3.5 terminology, my message is clear.
Nail said:
Here's the real point of contention (if there is any arguement at all to be had in this thread).

Is there any RAW that says, one way or another?
IMO, you gain no concealment from those sharing your space (in your square or squares).
I am in 100% agreement (at least in terms of OM).
Nail said:
Not true. You do gain AoOs versus those with Concealment. You might be thinking of Total Concealment.
I have actually always been confused about this rule and have never gotten right

. Is it 50% cover that negates AoO?
Nail said:
Moreover, since the only way this entire scenario would work is if the opponent was flat-footed....they won't get AoOs.
Not necessarily, He doesn't have to be flatfooted, just unaware of the attacker. One thing that never makes sense to me is the need to remain in the arbitrary allocation of rounds. If X and Y engage in combat, the rules make perfect sense. However, if during that combat, Z comes upon them, and both X and Y are unaware of Z, why doesn't Z get a surprise round? If he came upon X or Y individually he would. What is it that makes the designation of rounds negate Z's surprise on X and Y? Regardless, if you concede to the rules of once combat round sequence as the rules suggest, as soon as the rogue, X, disappears into the mist and sneaks up on Y, Y is losing his dex again, even in the scheme of rounds, because Y is unaware of X.
Nail said:
In fact, grappling is the only way such a thing could happen....there is not another alternative (barring size differences)
Hence my suggestion using that mechanic.
Nail said:
Wha??????? yer mixing-and-matching some stuff there, bub.
I am well aware. That is why I said this is how I'd handle it. sfedi is attempting to grapple without the actual grappling part. There are no rules that strictly describe what he is attempting to do but I can picture perfectly what he wants to accomplish. Since I can imagine it happening in the real world, it makes perfect sense to try and arbitrate some sort of rule to accomplish it in the game world. Using what is already there, I made a call. Normally you make a touch attack to initiate a grapple then roll an opposed roll to deal damage and enter the state of "grappling". sfedi wants to enter the opponents square as you would with a grapple, but not actually grapple the opponent, just make an attack. The grappling rules do have the attack portion built in, the whole light weapon at -4 deal, but have it so that it only comes after you are grappling. I am making a judgement call that the reason they introduced this rule was because the grapplee's (as opposed to the grapplers) might not always have a good chance of winning an opposed roll. So as to not make grappling uber broken, they introduced this secondary device of engaging in combat while being grappled. They probably did not foresee the possibility that someone would want to willingly attack in a grapple at -4. It doesn't make any sense at its face, right? Why would someone willingly engage in a grapple if not to grapple? Well, here is that case. So instead of making an opposed roll to initiate the grapple, you make the attack at -4 vs. their AC and consequently you would have automatically lost the opposed roll (it was never made in the first place) and so you go back to your square. Keep in mind the balancing factors here. Compared to just a straight up attack, you still maintain the miss chance from concealment, and now there are two rolls necessary and the second vs. the opponent's AC is penalized by -4! All that so that the rogue can deal sneak attack damage. I think it is a balanced ruling.
Nail said:
"Becoming aware of you" has nothing (nada, zip, zero, zilch) to do with it.The only way to sneak attack while within a grapple is if the enemy is flat-footed (at the beginning of combat). The opponent you grapple, even though he rolled an opposed grapple check, is still flat-footed....until his regular turn comes up. After the flat-footed thing is over, there's no way to sneak attack within a grapple.
I will repeat what i have above. Becoming aware of you has everything to do with it because an opponent who is unaware loses their dex because unaware would mean that he is blinded to you. It is far more drastic even, not only can he not see you, he has no idea you are there in the first place. Because the opposed grapple is not treated as a second attack from the touch attack to initiate the grapple, it is all part of the same action thus losing your dex to the touch attack would also mean losing it to the opposed grapple. In this case, I am suggesting to make the attack at -4 instead of the opposed grapple but the result would be the same. If either was successful, S.A. dmg would be applied.