Thanks for all of the suggestions and comments folks. I truly do
appreciate the input.
To answer a few questions....

Yes, you'll be fine. Make sure the green is continuous and no red is
visible. Isn't there an equipment grounding conductor in the box now?
The outlet, and the feed to the outlet at the breaker panel, no. The
sub panel is grounded (New sub panel with proper neutral seperation,
ground, etc)

If there is a ground that was clipped short and it's in a remodel box he
can pull the box and potentially have enough slack to reterminate the
box with the ground.

No, it's a remodel job that was done and AFAIK, the ground was not
clipped, it's just not there.

If the Romex has a PVC jacket vs. cloth, there should certainly be a
ground conductor in it. The print on the PVC jacket should indicate
something like 12-3 with ground. If the Romex is old enough to have a
cloth jacket then perhaps it really doesn't have a ground, though I've
seen a lot of cloth jacketed Romex that has the expected bare ground
conductor.
The wire appears to be cloth covered, however the conductors appear to
be PVC sheathed.

How exactly could using a red as a ground hurt anything?
The absolute worst senerio is that someone in the future will be working on
the circuit and find the red isn't hot like he expected, and that the ground
is missing. If he isn't bright enough to put the two together (and the
green tape has fallen off the red wire) he will have to fall back on your
suggestion, but there is no way any harm can result.

The only thing I could see in the future would be if someone were to
tap into the line somewhere under the house where there would
obviously be no markings. I'm more concerned about a house inspector
dinging me on this if I ever go to sell the house.


Thanks again
-A