I concern is that its going to be an issue when you go for a longterm backup policy, where you take a full backup once a month and hold them on for a long time. The way Oracle suggest that you can achieve this on 8i is by marking those backupsets unavailable.
Where does Oracle suggest this? Is this actually documented somewhere?

This is completely bizzare that you had to restore the bs to mark it expired. I'm soon gonna be backing up an 8i target with 9i catalog with retentions of 7 years. Guess some serious testing needs to be done.

Thanks for the followup. Do post again with Oracle support's official response.