Removing the C4 capacitor completley disables auto reset, not quite sure how the 9v enters into the equation.
The reset on the arduino is activated when the pin is brought LOW (0v) from its normal state held high (5v) by a 10k resistor. What happens with the DTR is that the DTR is usually high (5v) and goes low when the serial port is initialised. This change of state is 'transferred' via C4 to the reset pin which temporarily drops low before being brought high again by the pull up resistor and resetting the Arduino. If C4 isn't there it doesn't happen and the arduino only resets by pressing the button. The workarounds to this autoreset revolve around keeping the reset pin High despite the best efforts of C4 to bring it low when DTR goes low.