Good discussion.
As a photographer that makes money by selling images, I would be quite angry if I hired someone to do specific editing on the image and found they made any commercial use of the image. Even posting the finished work on their website without permission would be a concern. Ethically, I think its completely inappropriate regardless of whether there is any legal gray area.
Assuming I had properly copyrighted the image, the edited version - or multiple versions - would normally be covered under the original copyright application regardless of who did the editing. In the case here, the subject is unchanged and the image looks quite similar.
Copyright protection has two different types of derivative works. One covers versions of the same work by the copyright holder (such as a copyright for an image in a book and the image individually), and the other involves creating substantially different artwork that uses another's work for inspiration or as a component of a larger work.
I could see a case for claiming a a Peter Max style representation of the work is truly different - especially if painting software is used. But cloning is so normal that it does not create a materially different work of art.