Check with Randy McCune (RMC) on this BBS. His brother, Glen, does butt extensions with spalted wood. See the thread from a few days ago for some discussion and pics.
For stabilization of the punky areas, talk with Abatron in Chicago. They manufacture a product called Liquid Wood that is very versatile and may be suitable for your project. I have used it a lot on old house and furniture restoration projects. Any resin stabilization will affect the wood's abilty to take color and finish consistently, but if your customer likes a clear finish with no stain, Abatron has various epoxy varnishes that are fully compatible with Liquid Wood. That would allow you to use the Liquid Wood only on the punky areas, and still get a consistent finish on the final product without adding a lot of weight to the stock. And, it will be waterproof.
