I'll even allow that you may be right that it wasn't wise for her to put this passage in the narrative where she put it, in the context of Jack's reminisence, though that was her decision to make.
Of course it was. Just like everything written by every writer -- from the brilliant to the schlocky -- is his or her decision to make. Doesn't make it a good decision, necessarily.
"You shut up about Annie. This ain't her fault"--if people conflate her story and the movie and can't see the differences. 
You are absolutely right. That aint her fault. My complaint in this case is about people who analyze the movie on the basis of the book, when they are two different works. Annie cannot be blamed for this, but it makes the situation all the more frustrating for me. I can't tell you how many times I have seen people invoke that sentence to explain Movie Ennis' attitude, even though it is obviously inapplicable.
And just out of curiosity, do you also consider it a mistake that she doesn't mention Jack's drive to Wyoming following Ennis's divorce except in the context of Ennis's phone call to Lureen--and never elaborates on why that drive was for nothing?
I don't think so. I didn't remember that part of the story -- maybe even failed to notice it, in fact, so it didn't have a chance to stump me -- until after seeing the movie, by which time the explanation seemed clear.. But as a rule I don't consider it a mistake if an author just omits information, deliberately leaving something ambiguous or mysterious. Making readers think is part of literature's job.
What bothers me about the embrace thing -- and it bothered me when I first read the story,
before seeing the movie -- is that it seems not to enhance anything but rather contradicts Annie's own purposes. After all, by her own words Ennis also prefers to "embrace" ALMA from behind, as if not wanting to remember it's a woman he's with! And she portrays Story Ennis as otherwise not particularly homophobic, except for that one anomalous detail. I felt as if she threw that in because it was a catchy way to describe a man ambivalently involved in a gay relationship, without regard to the contradiction and larger implications for her character.
Anyway, this is a minor issue, but it illuminates a major one that, as I have said before, divides Brokies. What did Ennis know and when did he know it? What did he realize at the end? I disagree with most of the past several posters about this, and as it seems an unresolvable controversy I'm sure you will all disagree with me. But here's my opinion:
Ennis loves Jack throughout the movie. And he knows he does -- he may not use the word "love" to describe "this thing," but he knows his feelings for Jack are so intense he barely trusts himself to be around Jack in public because they might grab hold of him at any time. That's why he mopes while Jack breaks camp on Brokeback, why he cries in the alley, why he pines for Jack for four years, why he gets all excited about the postcard, why he dresses in his best shirt and sits with his nose pressed against the window for the reunion, why he is overjoyed when he sees Jack, why he sends up a prayer of thanks, why he continues to see him for 16 more years despite all the risks and fears and shame entailed, why he always looks thrilled whenever he sets eyes on Jack, why he breaks up with Cassie, why he looks miserable in the bus station ... and on and on and on. People who don't know or want to deny that they are in love feign disinterest in the object of their love, they don't behave like that.
I also think he knows from the beginning that he is gay, though he is doing his damnedest to repress it. He believes what he's been taught -- that it's immoral and disgusting and so on. Yet he gradually comes to some recognition of it, as evidenced by the "people know" scene (Update: Jane, I just saw your post, and that is
exactly what I think!). The stress of coping with these contradictory emotions is part of what prompts his breakdown at the lake. But it's also because he knows that he can't stand it no more -- loving Jack but not being able to live with him -- yet has no idea how to fix it.
And what he finally, finally realizes at the end is that he should have made his love for Jack his first priority, that it should have outweighed all other considerations -- fear, shame, following rules -- that he should have fixed the situation rather than stood it. Hence his question to Alma, "this Kurt, he loves you?" He has realized that love is what's most important.
