SERIALIZABLE is ridiculously slow if you have any level of concurrency in your app. READ COMMITTED is a reasonable default in general. The behavior GP is describing sounds like an out and out bug.

Dirty reads incidentally weren't supported for quite some time in the Sybase architecture (which forked to MS SQL Server in 1992). There was a Sybase effort to add dirty read support around 1995 or so. The project name was "Lolita."