I never used a scenario like yours but it seems that both SPs are not running into the same session. Can you use global temp tables?

CREATE TABLE ##temp1 (xyz char(1))

>We're having a problem with Stored Procedures that access Temp tables ... the problem occurs only on one of our customer's servers (using the exact same database, on a different one of their servers, there are no problems).
>
>We've traced the problem to something to do with the visibility or scope of Temp tables.
>
>Here's an example of what I mean:
>
>SP1 has this code:
>

>    CREATE TABLE #temp1 (xyz char(1))
>
>    EXEC SP2
>
>    SELECT * FROM #temp1
>

>Now, SP2 contains code that uses #temp1 if it exists:
>

>    IF OBJECT_ID('TempDb..#temp1) IS  NOT NULL
>        INSERT INTO #temp1 (xyz) VALUE ('x')
>    ELSE
>        SELECT xyz FROM someothertable
>

>What ends up happening is that SP2 does not recognize that #temp1 has already been created and what we're trying to figure out is why. Something to do possibly with *where* Temp tables get created? Isn't it *always* in TempDb? If not, then where is the setting that dictates that?
>
>TIA,
>~~Bonnie