I disagree with the premise that LFL had a problem with the 16 or so terabytes required to save one scan of the movie in 1997. Raiding harddrives has always been key to large storage facilities. They had experience from the Special Editions two years prior, and they planned out these technological hurdles a year or so before even beginning work.
The idea of cost cutting could be the reasoning which would support why when they finished a shot they printed to film and made room for more production files. But since there's always new things emerging from the LFL archives, I don't think they did this. Maybe on Jurassic Park in 92-93, but not by this point.
Here's an article about TPM: (1999.06.01)
"Using the Force: How ILM's Army Conquered The Phantom Menace"
http://digitalcontentproducer.com/mil/features/video_using_force_ilms/
picked out a bunch of quotes here and there, good article worth reading the whole thing. This quotes about the editing side of the process:
All of the live-action film was processed and immediately telecined to be dealt with on the Avid."
ILM's FX Editorial department then functioned as the "funnel" for the OMF files that flowed from Lucas' editors. ILM actually used three Avid systems-one for each of the film's visual effects supervisors. On Tanaka's computer screen sat icons showing faces of Lucas and ILM's supervisors. "We used their heads to represent the hard drives where we stored their shots," says Tanaka with a smile. "By SW2, maybe their heads will be animated!"
Here's a clue about them archiving the original scan which for me shows they were saving every step along the way:
Even so, they calculated that they would fall behind. The process of preparing frames involved dirt removal and color timing, as well as an archival process. *OMIT* In scanning it, we can't forget what it was originally.
Here's a quote which alludes to the Special Editions frame scanning:
When the system was done, we could scan closer to 3.5-times faster than when we started Star Wars." In the end, the scan tally was a half-million frames.
No reference to what's being upgraded, but if individual machines were getting quadrupled, the server farm was probably huge.
Dailies on the Desktop What is truly striking about SW1 is how much decision-making happened right at artists' desks. The entire facility got a processor upgrade, and disk space and memory were tripled and quadrupled
Here's a reference to data transfer and it mentions terabytes:
The Network Glue Twenty-four hours a day, seven days a week, ILM's Gigabit Ethernet provided the connections that held SW1 together through all phases of production. "We've averaged about five terabytes of data a day," says network operations director Raleigh Mann, who joined ILM from AOL. "At peak, we actually pushed 16 terabytes through in a day. Though our network is small in terms of the numbers of computers on it, we maintained a percentage of traffic close to the size of AOL's."
LFL has been at the peek of data production since the early 80s, they most likely worked with HD manufacturers always having the most up to date storage facilities. So I lean more towards they've got it backed up. What they did once production was done to wrap things up, don't have a clue.