Success! I placed the old (source) machine in target disk mode and used Retrospect to make a duplicate of it into a file on the new machine. Be sure to use "get info" to uncheck the "ignore permissions" box on the old machine's disk before you duplicate it. Retrospect will place a duplicate of the disk in a folder on the new machine. Next, use disk utility to make a disk image from the folder. With this disk image on the new machine that you want to migrate to you double click the image so that the disk mounts onto the desk top. Once mounted on the desktop, Migration Assistant will recognize it as a disk volume when you use the option to "migrate from another volume on this machine". The migration process is long and migration assistant sat at the "less than a minute" remaining point for about 40 minutes, but it completed successfully and everything transferred and worked.
It seems that the migration assistant has a problem with transferring really large files over the firewire. I had a couple of drive images from earlier versions of Virtual PC and an 8 gig Entourage database that appeared to be the problem with the initial attempts to migrate with setup assistant and migration assistant. This appears to be due to the program timing out and returning an error that the network was not responding while attempting to transfer the large files.