Mandatory characters

I can't really say why it's not working. It sounds like the event bits are telling the game that there are no available characters for some reason.

I'd try checking to see if a normal party selection screen comes up (without making anyone mandatory).

I can't think of anything else at the moment without testing it myself, which I won't have a chance to do for a while. You could try looking around CA/F5A8 (the party selection routine initiated on the airships) for clues.