1. Continuing the work around. I subset the image to 10GB sizes (using ERDAS Imagine, as ESRI tool box failed miserably to create a subset).
2. I was able to run the mobile map cache tool with the image as a map service. Ran into 999999 error, so installed the SP1 for 9.3.1
2. Now the error I am encountering is :
ERROR 070007: Bad request
Failed to execute (GenerateMobileServiceCache).
Is it due to the map service not available?