Remote rejected error with git

I'm trying to get a git public repository installed on server and can't seem to push an update.
I have my server local user with ssh access and file transfers seem to go fine. I have git 1.6.0.4 installed on both development iMac PPC (10.5.5) and server Intel (10.5.5). I included git-shell path in /etc/shells and /etc/shells.personal.

The public repository was deposited on an external drive with scp and everything looks good. Permissions to the files are in place. Following git installation to /usr/local, I added /usr/local/libexec/git-core to the $PATH variable.
I even chmoded the hooks files for execution.

However, when I make a change on the development side and then commit, followed by a push to the server side I get

"Compressing 3 objects. Done
Writing 5 objects. Done
Output:

Counting objects: 9, done.
Total 5 (delta 3), reused 3 (delta 2)
fatal: exec unpack-objects failed.
error: unpack failed: unpacker exited with error code
To server:/Volumes/dir.git
! [remote rejected] master -> master (n/a (unpacker error))
error: failed to push some refs to 'server:/Volumes/dir.git'"

All my google efforts produced linux type solutions. I did add a report back hook for update but I don't see any response.
Console secure log indicates the ssh publickey is accepted and file transfer seems to go through.
My guess is that git-unpack-objects is not called.
I tried git gc and git fsck to cleanup any residual files and received no errors.
On initial transfer of the public repository and subsequent push I received an "Everything is up to date". It's the push following a new commit that hangs.

Any advice from someone running git on server?
TIA,
Harry