  D-instanton effects are studied for the IIB orientifold T^2/I\Omega(-1)^{F_L}
of Sen using type I/heterotic duality. An exact one loop threshold calculation
of t_8 \tr F^4 and t_8(\tr F^2)^2 terms for the heterotic string on T^2 with
Wilson lines breaking SO(32) to SO(8)^4 is related to D-instanton induced terms
in the worldvolume of D7 branes in the orientifold. Introducing D3 branes and
using the AdS/CFT correspondence in this case, these terms are used to
calculate Yang-Mills instanton contributions to four point functions of the
large N_c limit of N=2 USp(2N_c) SYM with four fundamental and one
antisymmetric tensor hypermultiplets.
