Another update:
(1) With a diffuser on, the image is smooth (but not blurry at all) and the individuals pixels are impossible to spot.
(2) Playing with the position of the lens for a whole afternoon can give you a massive headache
(3) For some odd reason the controller board sets the default resolution to 1440x900, which looks great (and crisp) but doesn't match the native resolution of the panel. The odd thing is that if I set the resolution to 1280x800, I can see interpolation artifacts (pixel doubling) - maybe this controller board isn't very good.
(4) I am finding it hard to overlook the low resolution of the display - 640x800 is really low - and it covers your whole field of view. Maybe with more use I will get used to it, in fact, the low resolution of the HMZ-T1 bothered me for a while and now I am happy with it.
(5) Trying to coerce games that were not designed for immersion to work with the Oculus at the driver level isn't realistic. Games (and experiences) must be designed with the Oculus in mind otherwise the user experience will be poor. Things like HUDs and UI elements are not usable unless they are positioned closer the center of the screen.