Or at least that is my understanding after the past few hours or work and discussion by those smart enough to fix such things

The financial argument is being able to have that many more sources to get art from.So if everyone here believes that being able to choose the older blending behavior and greyscale detail really adds something to T3D 4.0 moving forward, then absolutely keep it in. If its left in for any other reason. . . please just trash it.
I'm not trying to start an argument. Just adding my two cents.
I only borrowed the idea of doing the blending in gamma space even though they are using a full linear pipeline like we now are. So the blending equation is completly unchanged from T3D 3.8. I'm guessing the CryEngine guys either ran into the same problem we did or maybe they didn't want to break older projects or they just liked the results this way better? Anyway hopefully the blending should be back to how everyone was used to in T3D 3.8 and earlier (i honestly can't remember if we switched to linear pipeline in 3.9 or 3.10). There still are few differences compared to the old way but i think the results are pretty close.So looks like we found the "bug", even though probably unrelated to the initial issue.
It looks to me that the 3.9 changes improved the overall look of the terrain, making it more realistic, but also made the whole blending more sensitive so you hit black and white spots more early.
Did you use the same method as Cry Engine?