Atlantis said:

I'm ok with using the Bluray as a source and starting with a new version. I would even suggest you output a 1080p output. It would be easy in premiere. You just replace your video with the 1080p source for the final render.

I think Harmy chose 720p because it blends better with stuff taken from GOUT and other sources that are not 1080p. Also, it helps to reduce whatever oversharpening and DVNR which seems to be present on the Blu-ray.

About the "watercolor-effect" thing at Vader's entrance, here's a comparison. (Harmy's on top, mine on bottom, downscaled to 720p)

And a closeup comparison which I've brightened a bit for it to match. Harmy's on left and mine on right.

Harmy's version is slightly blurrier, but I'd say the watercolor-effect is there on the HDTV version too.