The Blu-ray does have lots of oversharpening artifacts and some nasty color boosting, it's the primary source for this, so that's likely some of what you're seeing. The downscale to 720p mitigates some of this, the color correction a little more.

As to colors, there is no "maybe it would look better if...", there is only "it looked like this or it didn't". Harmy had a very good color reference, and he approximated those colors from the Blu-rays the best he could. Certainly he might have done a better job here or there, but the point is that it's ultimately not a subjective idea of what looks better--it's only a matter of what it actually looked like in 1977. If it was also too natural then, well, mission accomplished.

As for blending HD and SD material, Harmy absolutely used a few tricks, for example he did add some fake grain on SD sources to make them better blend with the HD footage, etc. There's still the matter of varying detail level, and if that bugs you, I'd suggest the DVD downscales, which place an upper limit on detail, making everything blend better. They're not HD, but they still look better than any official release.