I am happy to report this problem is solved. HP Support had seen this one before with Crystal Reports and said it is because the report application is in grayscale mode and the printer is in color mode thus the ColorSpaceMismatch error. There is an option in the printer driver settings to print grayscale mode and this will allow the VFP report to print correctly, albeit in grayscale, not color.

To print color reports from VFP8 to the LJ 3500, I googled an answer from Cindy Winegarden -- USE the report FRX, in the first record edit the EXPR memo field and change COLOR=1 to COLOR=2. Voila, report prints in color!

Is there a more obvious Report "Color" property in the VFP8 IDE that I'm missing ?