How can we reconcile the anointing of the Prophet's—may Allah's peace and blessings be upon him—noble hair with oil, and the fact that oil (especially olive oil) may form an insulating layer preventing the water of ablution from reaching the hair, and what type of oil does not affect the validity of ablution?

Olive oil does not prevent water from reaching the skin, as it is a liquid, unlike solid fats that would impede it. Purification is valid if only the color of henna remains, not its substance, or if a trace of a liquid oil remains that allows water to touch and flow over the skin. It has not been reported that the Prophet, peace and blessings be upon him, used to oil his head with olive oil.