Talking to the folks in the Operations side of the house, I got another story. This coworker was working on a well-publicized project which was about two weeks away from completion. The appropriate manager from Operations had talked to this coworker's manager about having him work on the project, and had been granted that request. It seems the manager hadn't reported the project further up the line, which is why on the books it said that this coworker wasn't working on anything.
The irony of the situation is that this project must get done. The contract house we had been working with is expensive, and wasn't doing adequate work in the first place. (This would be why we pulled the project in-house to complete.) Since it has to get done, we'll have to hire an outside contractor to finish the work. The word I hear from Operations is that they are looking at contracting with the employee who was just laid off, since he's the most familiar with the project.
Fortunately, I just got back from vacation, so I find the situation to be really funny, in a very sick sort of way.