Seems to me, that PLSD is not using in your case the 10g client, but the 11g version. Have you tried in PLSD to enforce the Oracle 10g Home in "Setting/Oracle/Connection/Oracle Home"?
This works at least for me in W7 (I have three different clients 9/10/11 installed so that I can select the "correct" one)
Btw. the "incompatibilty" 11g client/8i database is some standard Oracle behaviour.