I reckon that you should have three EAW folders (or more if you like).
The first patched to 1.28E, plus the FAW stuff and only used for FAW with the FAW manager.
The second also patched to 1.28E for all the DirSet Picker stuff.
The third being the default install, patched to 1.2, or preferably a copy of it.
PTII must be run in a 1.2 folder and never in one patched to 1.28E
The problem you mention is not connected with the patches, unless you are trying to run PTII in a 1.28E patched folder, which you should not be.