if you are talking about doing a "create offline" from a timeline that still has it;s media intact, then i'm not sure this is a bug, larry.
there are a few extra steps you need to do before it will work, but they are all quite normal.
for starters, did you tick the "delete unused" box?
how about UN-ticking "include master clips"
if that fails you can always copy your sequnce into a new project, and MM from there.
Now, if you're talking about doing a "Create Offline" from a sequnce where the media is ALREADY offline,
then yes that IS a bug in FCP5.
it was a bug in 3.0, then was fixed.
now it's broken again
one workaround is to export your sequnce as XML,
read this:
[
www.lafcpug.org]
open it in an earlier version of FCP
(not 3.0! - in truth it has to be FCP4.1 or 4.5),
and do your MM in there.
otherwise it's EDL land,
or that 2.5hr re-capture you mentioned.
cheers,
nick