Hi AtomicTroop, sorry for the late reply, just got back from my holidays here.
The main problem with your code is that Flixel is trying to create a bitmap that has a height of 60000 pixels (out of bounds for Flash!). I understand what you are trying to do (probably a huge vertical game going up or down), so you should consider creating a FlxGradientBackground that is equivalent to the screen's size and do the following:
private var _background:FlxGradientBackground;
...
_background = new FlxGradientBackground(0, 0, FlxG.width, FlxG.height, 0xff99ffcc, 0xff003333)
add(_background);
And then change the background's colors dynamically inside the game with the color properties:
_background.topColor
_background.bottomColor
Here is a dumbed down idea for transitioning colors:
_background.topColor = _background.topColor - 0x00010101;
(you will need to set limits for this to work properly and call it every x frames).
Finally, you gave me a good idea I might actually try to implement (changing gradients according to background position). Anyways, let me know how that works for you

EDIT:
Just updated FlxUtils on GitHub so it works with Flixel 1.51. Have fun everyone 
EDIT2:
Added FlxTextExt to FlxUtils. Feature suggestions are very welcome!