Opal

Well, I agree that the argument "other people have done it before and it worked" is compelling, its hard to argue that its not working now and its better to get it working whatever way you can rather than trying to work backwards.

Were the insulator sequences that other people used the same as yours?  Same plasmid backbone? Same insert?  It is possible that any combination of these could be triggering some form of recombination.  Its possible that just the ligation of that particular insert triggers the recombination.  I would try to obtain a more genetically debilitated competent cell line such as XL-10 gold or StBL2 cells that tend to handle unstable plasmids better.  You could also try growing the tranformation plates at a lower temperature like 30 degrees or room temp.  The colonies may take 2 days to grow, but the plasmid may be more stable.

Lastly, is it possible to change your cloning strategy?  Could you clone one insulator sequence into your vector, then the insert, then the second insulator?  I know that this may seem more cumbersome, but what is even MORE cumbersome is trying the same failed cloning over and over.

Best of Luck.