After massive testing and tickets it seems this feature to be broken. Followed the advice to use DHCP at the AMI instead of static. Did factory resets but at the end, a wireshark of the attached switch port still shows the RADIUS packets to flow with the Mgmt-IP instead of the AMI-IP.
I'm really at the end of my tether, I can't update the customer's APs and am stuck in version 28.x. Great.