To clearly understand what was taking place, at the time we were both in Port Hampshire before v3 and Rain had gone into stealth mode after I had casted TS. Up until he got a bit away from me I could see him and then all of a sudden even when he was next to me I could not see him again.
This gave the appearance at the time that because I had lost "awareness" of him being there, he totally disappeared.
In version three though for some reason with TS cast I can not see Rain... Its actually quite unnerving for my character because she hates sneaks, as Hawklen and Rain will confirm. So either there is a problem with sneak for some characters or a bug with TS.