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Yes, if the client doesn't mind not having the content on the old domain, then 301 redirects are the best solution.  Without seeing the navigation menu and the two sites, it's hard to evaluate whether you need to change the links.  If it would seem odd to user to click the current link and land on the new domain, then what you suggest sounds good.  If both sites are clearly identified as being the same company and look pretty similar, you may not need to change the link(s).  The 301 redirects will take care of the search engines, the change to the link(s) is a question of user experience.

This might be useful to you http://www.hobo-web.co.uk/webmaster-guidelines/

Apologies - My linked source was a little outdated but it did indicate it would become more widely adapted

Hi, this was recently asked at http://www.seomoz.org/q/following-penguin-what-is-the-best-practice-for-a-web-design-agency-placing-a-footer-link-in-client-sites. I added in the conversation and there may be answers you are looking for there.

Thanks Highland I will take a look

Thanks Barry, actually the other problem with Xenu is that it can't really handle very large sites and this is a very large site! I will investigate XPATH and PHP, thanks