The idea of the small image over blurred background is to make the low-quality image smaller on a moder large screen, like it would have been on a small CRT back then and yet to keep the screen visually filled like in the original documentary. Then the idea extended into using the same thing for the film footage to make it visually consistent and again fill the screen, like the original documentary’s Pan&Scan footage. And finally, I added the extra horizontal blur under the BTS footage to simulate the same AR as the film footage. I personally really like the look.
Sure, I see where you are coming from.
I will say though that the whole blurred stretched backdrop thing is truly the worst thing to ever happen to video.