The localization of STDOUT is causing this, but I'm not sure exactly why. Here's code that demonstrates this:

use strict;
use warnings;
use IPC::Open2 ;

my $out = '' ;
{  local *STDOUT ;
   open(STDOUT, ">", \$out);
   process();
}
print "\$out = \n", $out;

sub process {
   my $pid = open2( *Reader, *Writer, "/bin/date" );
   my @prog_out = <Reader> ;
   close Writer;
   close Reader;
   print "output from date:\n",join("|", @prog_out), "\n";
}
[download]

This will produce:

Thu Feb 28 08:08:13 CST 2008
$out = 
output from date:
[download]

which shows that date printed to the original STDOUT and that the print in the process subroutine printed to $out. If you don't localize STDOUT you get:

output from date:
Thu Feb 28 08:09:54 CST 2008

$out =
[download]

which shows that date emitted its output through the pipe.

Do you really need to localize STDOUT and STDERR? How about just using select to select a different default file handle? If you need to capture STDERR from your sub-process, how about using IPC::Open3?