I agree, I personally would not apply any sharpening.

When you say the flickering occurs around straight lines, do you mean lines that are near horizontal? If so, then the flickering might be introduced by processing in your display.

The Digital Video Essentials DVD includes a test pattern for checking that the full progressive resolution can be displayed:

This pattern is frame based and is one of several patterns in the program with full progressive video resolution. It will likely challenge the capability of many processors to up convert it to a true progressive image. If you see flicker in the progressive output of a processor it is most likely not set up to handle this much vertical detail. There should be no flicker in the progressive output if the processor can deal with full resolution in the interlaced image.

I have tested this pattern on various setups, one LCD TV I tried cannot handle it and does produce flicker. Can you describe how your player/display are set up and connected?

The simple alternative is to use AviSynth's blur command in the vertical direction only. (Generally, studio-produced DVDs are filtered, and do not have the full progressive vertical resolution - because some customers would complain about flickering. This is why HD downconversions can sometimes look better than the official DVD. Superbit DVDs are the exception, because they are aimed at buyers with higher-end AV equipment.)