  We construct Skorokhod decompositions for diffusions with singular drift and
reflecting boundary behavior on open subsets of $\mathbb R^d$ with $C^2$-smooth
boundary except for a sufficiently small set. This decomposition holds almost
surely under the path measures of the process for every starting point from an
explicitly known set. This set is characterized by the boundary smoothness and
the singularities of the drift term. We apply modern methods of Dirichlet form
theory and $\mathcal L^p$-strong Feller processes. These tools have been
approved as useful for the pointwise analysis of stochastic processes with
singular drift and various boundary conditions. Furthermore, we apply Sobolev
space theorems and elliptic regularity results to prove regularity properties
of potentials related to surface measures. These are important ingredients for
the pointwise construction of the boundary local time of the diffusions under
consideration. As an application we construct stochastic dynamics for particle
systems with hydrodynamic and pair interaction. Our approach allows highly
singular potentials like Lennard-Jones potentials and position-dependent
diffusion coefficients and thus the treatment of physically reasonable models.
