Doug’s story (as relayed on the BtE commentary) is that they wanted to have Holly (played by Norm) in BtE, but the matter was very much dependent on whether or not they had the budget to do three episodes rather than two (he couldn’t really fit Holly into things if there were only two). This question was drawn out over some time, as BtE was made on a threadbare budget and it was unclear for a long time exactly what they could and couldn’t afford to do. At some point, Norm rang Doug/GNP and said that he needed to know one way or the other whether they were using him, and they had until the end of that day to give a definite answer because otherwise he was going to take another job. At that point they still couldn’t confirm whether it was two episodes or three… so Norm decided to take the other job. Then, of course, it turned out afterwards that they probably could have accommodated him, but it was too late.
Norm’s story is that he was told he was definitely going to be in it, given dates to put in his diary, and then after a long period of stringing him along, he got “a pathetic little email” telling him he wasn’t in it after all.
It’s really up to you which of the two stories you believe; although I think it’s quite telling about the two men that while Doug has continually (and as recently as this last weekend) said that he’d be happy to have Norman back if he was willing to come back, Norm has spent his time penning spite-filled invectives about the affair on Myspace and on Certain Red Dwarf Fansites (Ahem), and saying he’ll “never have anything to do with Red Dwarf again”. Unless it involves using it to sell tickets to his stand-up shows.