"My husband was on foreign assignment (in Holland Jan. 2001- August
2003) where the company paid foreign taxes, although hypothetical taxes
were taken out of his check. In March 2006 (first correspondence), he
was notified by his employer (state of Texas) of a tax refund mistake,
which was paid directly to my husband by the foreign government (in January 2005). Now November 2006, the company wants him to pay back lump sum or dock his pay. Is there a specific time period where a company does not
have the right to require an employee to pay back any type of
overpayment/refund..........it has been 4 plus years they are trying to go
back. Is he obligated to pay money back or is there a statue of limitations??

No statute of limitations that I know of and, honestly, that period of time is not all that unusual for such issues. I used to manage payroll for an international oil drilling company, and it would often take several years for all returns to be filed, reconciliations, done, etc. Especially if something is appealed or amended. Is the employer willing to work with your husband regarding a reasonable repayment plan? You should also see your tax preparer (hopefully, you have one versed in such specific issues as U.S. taxpayers working overseas; not all are) as you will probably be able to file amended 1040(s) for the period in question.

Good luck. I know these things can get complicated. :(