In the circled part, does the harmony change to ii or is the D an échappé (escape note) to the dominant?
I don't think the harmony changes; the V65 is still in play until the second half of m. 4. Viewing the D as a move to ii would indicate a motion from V–ii, which is a really uncommon progression in this style.
Some may choose to analyze that D as a part of a larger V9 chord (
C E G B♭ D), but since it occurs so briefly, I think it's best to analyze it as a non-harmonic tone.
As such, you're correct in calling it an escape tone. Other labeling systems could call this an incomplete neighbor or even an appoggiatura, but they're all saying the same thing: it's approached by step from the chord-tone C and left by leap, in the opposite direction, to the chord-tone B♭.