hi
pehaps it would be useful to take a screen dump of the said projected circle on the mesh and post it up here?
urp, it is possible to use the effect/subdivide command with nurbs, it basically allows you to add another row in the u or v without distoting the shape, this is only possible with nurbs (and poly of course!), it is one of the reasons why the underlying maths of nurbs (Non-Uniformed Rational B-Spline, incase anyone ever wondered what it stood for!!) is so powerfull, attempting this with b-spline would cause a change of shape as the messh attempted to interpolate through the new set of control points.
when a perfect circle is project onto a surface, you do not get a perfect circle on the surface, unless it is perfectly spherical. i just say this incase you expected a perfectly circular projection and hence assumed that the result was wrong. i'm not sure, but its just a thought.
like i said, i think it would be much easier if you posted up a picture of what is happening.
btw, im also working on a nurbs character that requires cutting and stitching and SCM..ing...and i find it the most un intuitive process...EVER. once this is finished im moving onto subD's and putting the whole horrible process behind me. i find it takes at least an hour just to add a leg or arm, and thats if everything goes right, which it never does. immagine just being able to sellect a few polys, extrude them, and Voila, a seemless leg...of sorts!! anyway, just to clarify, NURBS bad, subD's good.....rant over. sorry 
leach