Thanks for your post. I realize it's old, but I think you've raised a great case and here are my $.02:
Problem 1: appointing the analyst as PO in your case seriously short-circuits the scrum framework. Why? Because only the PO can make value judgements, ROI assessments, prioritization and decisive choices that flow from the business, not from technology, not even from familiarity with the product. I'm sure your sr. analyst did a fantastic job mimicking the PO, but ultimately had to guess the wants, values, choices that would come from your PO. ref http://kenschwaber.wordpress.com/2011/01/31/product-owners-not-proxies/. Unless your analyst was granted POA from the client (unlikely), they would not be in a position to accept or reject anything at sprint review.
Could this approach possibly work? Yes but there would need to be a total transfer of responsibilities while your client was out. Your client's boss would need to agree to the surrogate, and that no reasonable decisions made would be reversed. Sound likely? More likely that you'd get a temporary PO from your client's organization (which is certainly not without its downside!) But if your sr. analyst worked with the temporary PO, any incorrect decisions would come from the business, thus keeping your team roles clean.
Problem 2: "client doesn't have time to review". Big problem (and one that I ran into recently too). PO must be present to accept the product. No one else can 'sign the check'. PO absence means dissatisfaction happens later, potentially more rework, and loss of trust. More fundamentally I'm sensing the client is not actively engaged in your project: no time for the daily standup, no time to answer questions, etc.
Problem 3: "we were told to wait till design team finished mock-up". And now are off scrum completely. The folks doing the mock-up should be part of your cross-functional team. I can't tell if this is caused by lack of management understanding of scrum or a shock reaction to your third release.
Question: Where was your scrum master in all of this? The SM would ordinarily recognize the danger of the role conflict and PO lack of participation, both obstacles / dangers to be addressed.