Old method for 200 amp residemtial service. 200 amp Main lug Meter combo. Pull larger 240 Volt loads outside to meter combo and run 100 amp feeder (#1 aluminum SER cable) to subpanel in the intereior of the house. The changes to Article 338 seem to say that this #1 SER cable will be now be limited to 85 amps because it is being used as an interior wiring method(from the disconnect on the outside of the house through the crawlspace to an interior panel). Am I reading this correctly.

That's the way I see it also. If you follow the reference to part II of Article 334, then you're limited to the ampacity in the 60 degree column & that is 85 amps.

I looked up the ROP from the 2008 code cycle & it appears that this was the intent. If you think about it, both cables are very similar with the SER having an outer jacket that is a little tougher than NM.

I read the recap of the 2011 changes in the IAEI magazine and they are doing away with the whole "feeder" language in 310.15(B)(6) so you are going to have more surprises when it comes to feeders, even if they do carry the whole house load. Basically that table will only apply to service conductors if I read the change right.
Couple this with the 338 change and you are running 4/0 Al SER for a 150a disco outside to a 150A L&A panel inside.
If you have a 200a you won't be able to use SER at all