Thank you for your help. All three of the comments are thoughtful, however it turns out that we had two problems.
Problem one is the known bug. In AIX 5.1 and 5.2, there is a bug that effect mksysb. If the kernel is greater than 12 MB due to many drivers, the restore will fail. The fix for this is to patch the firmware and the work around is to boot an alternate media of the same rev, but with fewer drivers.
Problem two is caused by how my client uses their RS/6000. It is only as one VG, rootvg. All of their application is in there. (Yes, they are aware NOW that best practice is to separate the OS from the application in most OS's.) There are files in the application area that exceed 64MB and one is over 800 MB. The RAM drive (swapfs) created during the install is only 128 MB. A temp file created from unpacking the mksysb tape filles the file system and breaks the process. My fix for this was to run the mksysb command with the -e switch and the -p switch. The -e switch causes an exclude file to be read and the application directories to be ignored. The -p switch causes the mksysb tape to not be created 'packed'. This succeeded. We are now restoring the data file systems separately. BTW...the mksysb tape took about 20 minutes to create this way instead of the usual four hours. My client will be continuing with this.
As to your questions:
Why are they still on 5.2? Because have an OLD app that they are not able to upgrade. I asked if they have plans. They do not. I bet you could have guessed the answer.
Microcode: Yes, the knowledge base refers to the problem with the firmware. However, the production system is not available for fixing this. It is a 7x24 system. Furthermore, when I suggested this, the client was not comfortable with changing anything on the production system.
RS/6000 and not p/Series. I am very old skool for Unix. I still think of the Linux volume management as OSF/1 compliant.
7208 is the model number of the RS/6000 (it predates p/Series.) BTW...it has a 4 mm DAT drive. Yes, this system is venerable. (I hate the word "old".) That is why we are cloning the system. I migrated this system 4 years ago from a Model 50 (talk about venerable) which is still sitting quietly in a back room.