You might find reading this helpful:
Is Mineral Oil Really Bad For Your Skin? - FutureDerm.com
Even though this comes from a blog and bloggers are often sent free products for reviews, (which makes me not rule out bias) the information itself is what I have read elsewhere over the internet.
I've read the same info you have about mineral oil and petroleum being bad for the skin- "It's used in machinery!" This usually comes from ezine articles which are often promotions for specific products disquised as "scientific" information. And parroted by people on skin forums because they've read it so often they take it as truth.
What I've gleaned from research on this topic, is that mineral oil and petroleum stay on top of the skin. You wouldn't necessarily want a product with actives and a high percentage of mineral oil/petroleum because it would interfer with the absorption of the actives. On the other hand, with something like sunscreen, that you WANT to stay on top of the skin, MO/Petro may not be such a bad thing to have on an ingredient list.
I've also read that people with dry skin can benefit from these occlusion ingredients in moisturizers because they "lock in" moisture. I've heard petroleum based moisturizers have been recommended by dermatologists for use over Retin A. And consider this: baby oil is mineral oil. If it were that bad, wouldn't it have been outlawed for tender baby parts decades ago?
I've read so many contradictions about things on forums I urge everyone to do their own research and draw their own conclusions. Even "experts" disagree, so in the end you just have to go by "what works for you".