My interpretation of the blurriness was that it was to represent that Forest's deterministic focus on the machine was too narrow and limiting in scope, whilst the many worlds theory cleared everything up because it allowed flexibility in how the visions could be viewed.
Keep in mind they use the ghost visions aesthetic again in that scene with Katie and Lyndon on the dam. Note that all the ghost visions in this instance keep showing the same thing (Lyndon falling) which I interpreted as Katie having previously seen a few iterations of how that talk with Lyndon went but kept on seeing him ultimately fall to his death.
Well, one can't exactly pick which universe they can see presumably (it's supposedly one of the issues Forest has against using the many worlds theory in his machine) and people are limited in that we can't see/experience all of infinity at once (much in the same way people can only see time in the context of the present and how everything else relates to that; when, if time could actually be viewed in it's true entirety, it would actually confirm determinism). Katie just saw multiple instances of Lyndon falling in the time she took to look and interpreted that as a given - note that there's a very quick scene in that episode before the title of the show appears, where Lyndon is alive, sitting at the bottom of the dam which indicates there is a universe where he may have survived or didn't die/fall off...maybe?
Keep in mind that The Fellowship of the Ring film does cut a lot of what was in the book. The first book was pretty sedate for the most part and then starts to get more serious and dire once they get near Rivendell. I think the film does a fair job of condensing it down to the essentials and giving it a sustained momentum. I think Elijah Wood was perhaps a bit too young - in both looks and manner - compared to the Frodo depicted in the book, so I agree with you there. I think Tolkien got this sentiment form other too when he wrote the books - the LotR was a sequel but it was considered much more dire and serious compared to the Hobbit, which he explained away by saying that the "tale just grew in the telling". Tolkien even managed to retcon parts of The Hobbit to try and make it fit with LotR!
I don't even remember much of the The Hobbit trilogy since so much of it was just inane, unnecessary, bloated and full of distracting computer effects. I don't recall any memorable character moments in the whole of that series (don't even remember any of the specific dwarves either), whereas I could name a few at the minimum for the LotR trilogy easily.