Seems like a pretty big downfall.
If the second disc goes in and out of blurriness, how is that better than 65% quality? Remove some features to up the quality. At least with a full bad movie, you get used to it and ignore it after about 10 minutes. If you are used to watching a perfectly clear first disc, it will drive you nutz to watch the second disc.
I have a 48 projection screen and have not had any concerns over quality, but I also copy the movie only. I don’t know if the progressive scan DVD player makes a difference.