There is a bug in .NET 2.0 regarding timeout handling by Socket class.
Here’s the code that reproduces this behavior.

using(TcpClient client = new TcpClient())
{
    // Set timeout
    client.ReceiveTimeout =
        (int)TimeSpan.FromSeconds(1).TotalMilliseconds;

    // Connect to perfectly working imap server
    client.Connect("mail.lesnikowski.com", 143);

    // Create reader & writer
    NetworkStream stream = client.GetStream();
    StreamReader reader = new StreamReader(stream);
    StreamWriter writer = new StreamWriter(stream);

    // Read hello line
    Console.WriteLine(reader.ReadLine());

    // this works with no problems
    writer.WriteLine("a NOOP");             // No operation command
    writer.Flush();
    Console.WriteLine(reader.ReadLine());   // No operation response

    try
    {
        reader.ReadLine();                  // Nothing to read
    }
    catch (Exception ex)                    // Timeout
    {
        Console.WriteLine("timeout");       // This is expected
    }

    writer.WriteLine("b NOOP");             // No operation command
    writer.Flush();

    // SocketException: A non-blocking socket operation
    // could not be completed immediately
    Console.WriteLine(reader.ReadLine());   

    client.Close();
}

The above code runs as expected on Mono and on .NET 4.0.

The problem is in UpdateStatusAfterSocketError internal Socket method that executes SetToDisconnected method when any exception is thrown, including timeout exception.