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I know, this doesn't solve your problem, but if the rightmost picture is, what you want to achieve, I'm wondering why you don't simply create a torus?! 'Geometry -> Create -> Open Torus Tool'
Steve, can you test it again. I have made some changes and 'Use Object Space' is no more.
@Steve: The order in which the offsets are made indeed counts. And I think it's not possible to avoid that. You got unexpected results, because you made the offsets in the wrong order (except for your second pic, that maybe a problem).
...but I caught a flu...