Is the data accessible and legitimate after the copy? If you copy it to a non-encrypted disk at that point, does it boot?

Yes, I believe it does. I'll try to verify that shortly. So although SD! rsync's may not actually be the problem. Do you have any other thoughts on why the OS won't boot after?

After we use SD! to copy the data over to the PGP encrypted external disk and try to boot, PGP authenticates from the external disk and then start into the kernel boot code (grey mac screen with the apple in the middle). Then after maybe 30 seconds of the little spiny firefoxish progress meter moving we see a circle with a diagonal line through it from the top right to the bottom left (Like a No-booting logo :(.

Have you seen anything similar with FileVault2 boots after a copy?

I can only suggest that they're doing something nonstandard in their startup volume. The data is likely fine - perhaps they have a blessing suggestion at PGP (they should work with the standard tools).