Actually the 1.04 patch shouldn't affect single player at all (Single Player only recognizes 1.03... though 1.04 DOES INCLUDE the updates from 1.03, so go figure), since it was a multiplayer update.
The latest explanation for Kyle's saber color change has to do with the Star Wars liscense (which either changed since MotS came out in early '98, or else doesn't apply to LEC itself so much as it applies to third party companies):
In the "official" Star Wars canon (the films), Good Guys(tm) use either blue or green lightsabers (or purple if you're Mace Windu) and Bad Guys(tm) use red lightsabers.
So Raven admitted that they were held on a short leesh as it were for Single Player, meaning Kyle had to have blue (just to be different, since he had green in the first game I guess) and all the bad lightsaber users had to use red (a change from JK and MotS, in which the game guys used a variety of colors).
Incidentally, Kyle never used a red saber in MotS, I swear it was ALWAYS orange. It would have been nice if they explained (in story terms) why he has a blue saber all of a sudden, but oh well...
This also helps to explain why Kyle's saber suddenly "doesn't work" (ie: turns off) in water, because of an unfilmed scene (that appears in the TPM novelisation). Too bad AOTC pretty much trashed that notion (see the Jango vs. Obi-Wan fight).