During the flashback it looked as if Jiraiya wasn't aware of the experiments Orochimaru was conducting.
The flashback prob did take place after Sarutobi's failed atemp to stop Oro. Jiraiya see Oro leaving the village in a hurry and tries stoping him not knowing whats going on. But even after finding out what Oro was up to he still hoped Oro would return in hopes of reforming him.