I have a lot of clients just like this guy who have high PR for a site that has had little to no traditional SEO work done. Usually they have a domain that's old and back links dusty old chamber of commerce sites. I would sell him on the 301 re-direct. You have to show him how without the re-direct, he's essentially competing with himself. Most small business owners I've dealt with will cede control if you explain this properly.
Now if I read between the lines, it sounds like this guy may have lost confidence in your abilities, which if that's the case, your best bet may just be looking for a graceful exit. If he doesn't trust you as an expert in what you do, you're going to be fighting a losing battle from here on out with him. Worse yet, you won't be getting paid for it. If this is indeed the case and you have honored your agreement with him, I would chalk this up as a learning experience and monitor the site from afar - hopefully it will rank eventually and you can then send him an email to make nice.