This issue seems to start specific then get a bit general and confused. The two-
word summary doesn't help to identify the specific problem. 

My take from the early paragraphs below would be that the issue is "A textbox 
added manually can only be assigned a Graphics, not a presentation style and an 
object created from layouts tab with a presentation style cannot have their 
style changed"

The help page you see if you press F1 while in the Styles and Formatting 
floating window says:

"The Styles and Formatting window in OOo-dev Impress behaves differently than in 
other OOo-dev programs. For example, you can create, edit and apply Graphics 
Styles, but you can only edit Presentation Styles." and "Presentation Styles:
Show styles used in OOo-dev Impress AutoLayouts. You can only modify 
Presentation Styles." and "Graphics Styles: Show styles for formatting graphical 
elements, including text objects."

This suggests that most of the observed behavior is by design (or at least as 
documented), the exception being that there is no mentioned that a presentation 
style cannot be changed to a different presentation style, but I think that is 
perhaps implied as the layout window seems to be designed to provide 
preformatted items, hence not intended to be changed.

Regarding other issues mentioned:

The reporter says that changing the presentation title style properties does not 
affect objects with the graphics title property. However again, that is how 
styles should work given that these are two independent styles that just happen 
to have the same name. Of course if one wants to mix the auto-allocated layouts 
and manual elements it would make sense to have identically named graphics 
styles to the presentation ones, and one would have to manually update them both 
to keep the styles in sync, which is clumsy IMO but seems to be the design. 

The report then talks about the "update" button functionality. I believe this 
refers to the "Update Style" button on the same Styles and Formatting floating 
window. I found this works correctly in my version allowing me to update both 
types of styles and seeing them applied properly so I think this may have been 
fixed since Jul '09.

The only functionality I can see in that window that doesn't work and as far as 
I can see is not a documented limitation is the "Fill Format Mode" button, but 
that is trivial to workaround in the common case of updating one element as 
double-clicking on the style will update the selected element. The "Fill Format 
Mode" however would be handy for applying a style to multiple items. It is 
possible to ctrl-A or otherwise select all items then do this.

Interestingly this also overrides the presentation style limitation above 
changing all items including presentation ones to the selected graphics style 
and seeming to convert presentation items to graphics items from there on. 
Perhaps that is not intended, and it seems inconsistent, but maybe it is good as 
a workaround to the design limitation that seems to be documented.

I am using Win XP with latest patches and OOo-dev 3.3.0 DEV300m78 (Build:9501)

Configuration:
* Laptop with Windows Home Premium - Service Pack 1
* Intel Core i7 - 2670QM CPU @ 2.20 Ghz -  8GB RAM
* OpenOffice.org 3.4.0 AOO340m1(Build:9590) - Rev. 1327774

I have created the following steps to replicate the bug based on the original bug description and added a number of follow-up tests under step 5, 6, 7 and 8 that vary the options and settings.

1 - Create a new presentation with an empty slide
2 - Add a text object to the slide > Select top menu item - Insert - Choose
    object - OLE object. Select button - Create new - then select ‘OpenOffice 
    3.4 Text’ as an object type. Click OK
3 - Enter a sample text; “Test Title’’ followed by two returns and “ Another 
    Test  Title”  Click an area outside of the box to create two lines of text 
    inside a text object box.
4 - Create another slide using the predefined layout Title Slide. Enter text 
    ‘Second Slide’ in the Title section of the slide.

The following sections contains both steps to replicate and to use as follow-up tests. 
It starts with using the different options of Presentation Styles under Styles and Formatting which can be chosen using F11. Followed with using different options of Graphic Styles under Styles and Formatting.

5 - Select the text object on slide 1 and choose F11. From the Styles and 
    Formatting pop up, select the Presentation Styles. Select the 
    individual options one at a time, then the fill bucket (if possible) and 
    drag onto the text object.

Result:
For all of the options the fill bucket is not selectable and nothing seems to happen to the text in the text object.

6 - Select the text object on slide 1 and choose F11. From the Styles and 
    Formatting pop up, select the Graphic Styles. Select the individual options 
    one at a time, then the fill bucket (if possible) and drag onto the text 
    object.

Result:
* Default - colors in the text object box with background color Blue 9
* Dimension line - creates a line around the box
* First line indent - nothing visible in the object box, but selection jumps to
  Title
* Object with arrow - forms a ‘thick’ line around the box and fills background 
  with color Blue 9
* Object with shadow - forms a ‘thin’ line, a shadow and fills background with 
  color Blue 9
* Text - nothing visible in the object box, but selection jumps to Text body 
  justified
* Text body - nothing visible in the object box, but selection jumps to Text 
  body justified
* Title - nothing visible in the object box, but selection jumps to Text body 
  justified
* Title1 - object box fill with Turquoise, gets a shadow and the upper half of 
  the first line of text sticks out of the box
* Title1 - object box fill with Orange 4, gets a shadow and the upper half of 
  the first line of text sticks out of the box

7 - Select the Title on slide 2 and choose F11. From the Styles and Formatting 
    pop up, select the Presentation Styles. Select the individual options one 
    at a time, then the fill bucket (if possible) and drag onto the text object.

Result: 
For all of the options the fill bucket is not selectable and nothing seems to happen to the text in the text object.

6 - Select the Title on slide 2 and choose F11. From the Styles and Formatting 
    pop up, select the Graphic Styles. Select one the individual options at a 
    time, then the fill bucket (if possible) and drag onto the text object.

Result: 
The characters move slightly closer to each other upon selection. But no other visible effect.

Analysis:
Given that the help text description for Styles and Formatting (See F1/Help Text below) the behavior seems correct according to description, with the exception of:
* Jumping to “Text body justified” and “Title” in the Graphic Styles options
* Text does not fit into box for “Title1” and “Title2” in the Graphic Styles 
  options

Finally I could not place the meaning of this part in the original report:
“And this gives a completely different formatting as all other titles. And when you change the title formatting (to change ALL of your titles), this title created from a text object will not change.” Some additional information would be welcome here.

---------------------------
F1/ Help Text:
"The Styles and Formatting window in OOo-dev Impress behaves differently than in 
other OOo-dev programs. For example, you can create, edit and apply Graphics 
Styles, but you can only edit Presentation Styles." and "Presentation Styles: Show styles used in OOo-dev Impress AutoLayouts. You can only modify Presentation Styles." and "Graphics Styles: Show styles for formatting graphical elements, including text objects."

I see no defect here. But I know, that using styles in presentation is very confusing, and therefore set this issue to 'enhancement' and 'confirm' it.

Please do not use the issue to discuss the problem. That would make the issue unusable. Discuss outside, for example in the Wiki, and when a specific solution obtains large approval, describe it here, so a developer knows what to implement.