Glad to see that another fan edit of this film is coming along the way. I wanted to make a recommendation to you about which source will give you the best results when it comes to processing the deleted Henry the Red scene. From the looks of the picture you put up, you are using the Anchor Bay disc as your source for the scene. What you need to know about that disc is that Anchor Bay did a bad inverse telecine on the video, and then further deteriorated the video when they enhanced it for 16:9. That's why there's a strange, interlaced appearance to it. Meanwhile, the Region 3 MGM DVD just uses a straight 4:3, interlaced transfer of the workprint footage provided to them. Although most of the workprint footage on the Region 3 disc has a strange interlace pattern(along with strange light blurs), the Henry the Red scene comes from a better source and has the normal 2:3 pulldown pattern - thus allowing you to inverse telecine the footage and get a higher quality result when compared to the Anchor Bay presentation.
Basically what I'm getting at, is that if you're going to go to all the work cleaning up the video like I did for the Primitive Screwhead Edition, then it makes sense for you to use the best source. Since pictures speak louder than words, I give you this comparison:
1st - the image you provided (presumably Region 1 Anchor Bay). 2nd - Region 3 Footage with Inverse Telecine and then resized to 16x9
Look at the wrinkles around his eyes, the hair by his ear, and basically just anywhere else in the picture to see the improvement.
I hope this information helps you and your project out. I'm looking forward to seeing what you come up with. If you would like any high quality copies of my materials, then let me know.