Is "above us" a prep phrase modifying the linking verb in this sentence?

"above us" actually describes the subject--which firmament? the one "above us"

this prepositional phrase is the predicate adjective of the sentence.

You diagram it in the same place as a normal predicate adjective and with the same diagonal/horizontal lines of a prepositional phrase; however, you'll place it on a pedestal like in the diagram sourced below (day 117 is the closest). Unfortunately, I couldn't find one with a prepositional phrase as the predicate adjective, so you'll have to adjust it as such.

I'm curious what you're doing with the "or" before the appositive "sky". I've never had to deal with that. Please, let me know in the additional comments section of your question.