I know that when viewed from infinity (or from a very large distance from the black hole event horizon), an object that falls into the black hole will appear to slow down and will become more and more red-shifted as it approaches the event horizon. To the far away observer the object will never be seen to enter past the event horizon since the time dilation at the event horizon approaches $\infty$ as the object approaches it.
Conversely, I know that if you are on an object falling into a black hole, you will simply fall past the event horizon and fall faster and faster and will eventually reach the singularity at the center of the black hole in a finite length of time as measured by the observer on the object.
However, what happens if the observer is in an orbit around the black hole at say, the last stable orbit for a material object at a distance of $3Rs$ ? EDIT: (thanks @Ron) Being in orbit or using a rocket engine to hover near the black hole gives a result similar to the observer at infinity: the infalling object will get more and more redshifted as it approaches the horizon but will never be seen to cross the horizon.
EDIT: So the remaining open question now is: what happens if there are two observers that are both falling into the black hole with one observer slightly ahead of the other observer by a small distance? What does the second observer see when the first observer crosses the event horizon? How does it change when both observers have crossed the event horizon?
EDIT: (Thanks @Ron) I now understand that the second observer will only see the first object cross the horizon exactly when the second observer himself crosses the horizon. (I think of it as the photons are just sitting there at the horizon waiting for the observer to hit them.) My only remaining question is, does the redshift of the infalling object just increase smoothly and continuously with time from the observer's point of view as they both cross the horizon and as they head for the singularity? What redshift will the observer see when the first object hits the singularity itself?