Are you saying it's the same file and no longer working, or just similar technique?
If it's just similar technique, then the devil is probably in the details. For example I imagine you could run into some problems depending on which order of rotations you use. It's only safe to cut the input on rotateY if the other two axes are independent from it; ie the object is order xzy or zxy. Otherwise you'd get flipping exactly like you described.
If the orient constraint doesn't work out for you, you could always use a point and aim constraint to get the effect you described.
Here's how:
Two locators, B parented to A. Move B down a few units so it 'hangs' under A. Point constrain A to the wrist, so now "B" is hanging under the wrist. B is going to be your control handle. (although if you are like me, you'll want to "B" to be something more aesthetically pleasing than a locator)
Anyway.
Have your wristcloth aim towards B, with the elbow specified as an up vector. Now the cloth stays in plane with the arm, while "hanging" down, as requested. One nice effect of doing it by aim constraint, is that the aim target provides a great handle by which to sway the cloth around. It also gives you some control over the solution when the arm goes vertical; since you control the axis yourself, you can ensure that it is never allowed to be colinear with the arm, which would cause flipping.