Transmission electron microscopy, conventional and high-resolution, is used to characterize the microstructural behavior of oxidized Ge0.78Si0.12 layers annealed in a reducing 95% N2+ 5% H2 ambient. An epitaxial Ge layer grows by solid-phase epitaxy on an underlying Ge0.78Si0.12 seeding layer with a Ge-Sio2 matrix positioned between them. Defect densities in the epitaxial Ge are significantly lower than in the underlying Ge0.78Si0.12. Microstructural details of this behavior are investigated.