With LACP configurations we have the recommendation of having the portfast, bpdufilter and bpduguard configuration on both individual interfaces and the port channels on the upstream switch, check if adding those give you any better results. You can also check for mode passive on the N1K side.
Additionally if there are no specific reasons for using vpc on the n5k for the N1k host, you can also look at the mac-pining option since you have 10 GB interfaces.
I already had portfast running and have enabled bpdufilter and bpduguard on both the 5Ks and it didn't help. One thing that is strange is that I will have the port-channel configured on the 5k and not on 1k and all my traffic is switched properly. However when I turn on port-channel on the 1k with mode passive or active, all my traffic dies. If I make the 1k active and the 5k passive and all my traffic starts being switch. However when I do a port-channel sum command, I see my two interfices on the 1k as Eth3/2(I) Eth3/4(I) .... normally I would think they should be Eth3/2(P) Eth3/4(P) .....
Also, not sure if this related to the following, when I shut down my primary 5K interface to 1k, the VEM powers down from the 1k ...... the VEM powers back on when I bring the port back up.
So you have two connections from the VEM to the upstream switch or switches? So 3/2 goes to N5K-A and 3/4 goes to N5K-B? Or do both VEM connections go to the same N5K? I see you have VPC defined so I'm assuming its different switches but want to be sure.
If you are shutting down the port-channel the VEM is going to drop. You've essentially killed the virtual backplane between the VEM and the VSM. If you have killed just one connection of the port-channel then that should not happen.
In your output below the interfaces are in the I state that means Individual. They should be in the A state for active. I beleive but am not certain that if they are in the I state the port-channel is not really up. Traffic is only flowing over one link and the other link is not available for failover.
Could you verify that your VPC configuration is correctly configured on the N5K? What you can try is to create port-channel without LACP between then N1K and N5K by using "channel-group auto mode on" on both sides. If that works then VPC should be correct on the N5K.