I'm assuming your "etc" is not /etc directory?
If you go with just copying and if the 5.1 system is going to hang around for a while, I would suggest using NFS mounting from one system to the other and copying (cp -p). If you use rcp, ownership, timestamp and permissions will change on the files you copy.
Alternatively, you could tar up /home, ftp or rcp it to the 5.3 system and untar it. (The tar file protects the ownership, timestamps and permissions of the files in the tar.) Same thing with /var/spool/cron and other flat files.
If the 5.1 system is going to be around for a while, you can always copy files that you no doubt will forget.
There are some files in /etc and /etc/security you will want on the new system to make sure your environment is set up the same. This is especially important for the /etc/passwd file because you will want your users to have the same UIDs and GIDs they had on the old system. Do a search of the forum. I believe AIXQueen put a list out a while back of the ones you are going to want.
Is Oracle (binaries and the database) in its own volume group?
If Oracle and its database are in their own VG together and if the disks of the two systems are compatible, you could export the volume group from one system, put the disks in the other system and import the volume group to the new system.
Your idea of doing a mksysb also would work and actually would get everything without your having to think too hard. You could set up the 5.1 system as a NIM server to push the mksysb to the new system. And then do your upgrade to 5.3.
If your database is in rootvg and does not use raw LVs, be sure to shut down the database before you start the mksysb. If your database is in rootvg and does use raw LVs (not recommended! I'm not even sure you can have a raw LV in rootvg??), I would exclude any database filesystems from the mksysb and get the database to the new system by exporting it and setting it up on the new system. A mksysb or a savevg if they are in another VG will not back up the raw LVs.
Good luck.