The Phantom Menace will be presented digitally for only a month, and because of this the traditional, celluloid-based projector still stands in the projection booth: the digital projector was installed next to its grandfather, on a temporary structure. This means that the conventional projector could still be used to show the trailers and anything outside of Episode I - but Texas Instruments wanted the audience to truly experiment digital cinema, from beginning to end, and so they had everything transferred to a digital master: their own introduction, the THX logo, the trailers, and even the AMC Theaters introduction sequence. Only one projector was used, and there was no need to load a reel of film at the beginning or to remove it at the end, let alone change reels during the screening.
Nice. Well I stand corrected! So Episode I was converted to digital all the way back then (though barely anyone would have seen it, 4 theaters for a month). Perhaps they didn't need to create a new digital master after all, and the bungling of the DVD version was probably for similar reasons that they bungled the 2004 editions from the "digital masters" created in the 2000's. They had to downsample and cropped the image and probably tweaked stuff along the way that goofed up the colors, brightness, sharpness, etc.
I still wonder about the digital masters created of the OT though, whether they were the 1997 master prints or the restored "originals" (prior to the 1997 changes, the originals had to be restored the old fashioned way).
Just for fun:
Looks like youtube is replete with spoofs of the new changes, like this one:
(Obi-Wan steps on a piece of lego)