Well good news and bad - isn't that the way it always is. I had two tools available to me. The first is BusHound this is a great and reasonably priced tool that will let you see what is happening on SCSI, RS232, USB and some other buses.
Well the RS232 was one of the USB dongle. The Bushound capture showed a whole lot of data followed by a 0 (null) and then my missing data. Ahha the NIOS is to blame.
My second tool is a Serial analyzer. Guess what it shows no lost characters.
So it appears that either the dongle or the driver is to blame. I am off to find a real serial port and see what I get.