what is the reasoning behind filling waterbox up with oil instead of H20 ? I took a call today and was told the pump quit stroking , drained the water box and it began stroking again , and someone from service told them they needed to be running oil in the waterbox instead of water .

In theory the heated hydraulic rams in the "wet box" can allow water to be absorbed back into the hydraulic fluid tank.  As long as you keep the poly packs in good shape the 3 gallons of oil will last a long time.

but why would this hinder it from stroking ?

I do not know much about olins but any chance they have some kind of actuator in the "water box" to control the stroke? I think Reed, and T/A both do  Reed has proximity sensors and T/A at lest used to use a rocker switch and both of them recommend oil instead of water it might help prevent rust? Guessing at this point but could your pump have been bottomed out at the end of a stroke? Maybe it got the signal when you drained the box and kicked over?

I met the Olin people in California years ago, they told me to run an oil simply because water isn't a good lubricant.  Put some water on your fingers and rub them, there's nearly as much friction as when dry.  As for why it would stop from stroking, I wasn't there obviously, but I'd say either coincidence or something fixed itself when your guy dropped the box.  Nothing special going on inside an Olin which needs to run oil instead of water - just rubber rubbing on metal.

On this topic, I don't know where all these people operate saying they can run oil in their boxes instead of water.  Some always splashes out, and you're leaving unnecessary oil (drips at the very least) on every job.  I know it wouldn't be acceptable to my customers.  

use either hydrolic oil or veggie oil. the poly pacs wont last in just water. they bind up from the water

Do not use veggie oil. It gets nasty and gums up. 

NProper procedure is to drain a few gallons from your hyd tank and put in washbox.  Then fill hyd tank with 3 or 4 gallons of new oil.  Only fill washbox to where oil is 1/4 of the way up the chrome rod.  I've run these pumps for over 20 years and never have issues with oil splashing out.  Unless someone overfills it.

As far as the stroking issue, it was either a loose prox sensor cable or prox sensor may be going out.  Was just coincidence that it functioned after removing the lid.  Check snugness of wires on the sensors and keep a spare sensor inside the control panel.  If it does it again, switch sensor out and get back to work.  5 minute fix.