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That makes at least as much sense as anything else in the movie, so I'm good with it.

Got it. I'd have to see a side-by-side comparison, but my hunch would be that Inland Empire is one of those cases where the visible difference between a well-authored Blu-ray and a UHD would be negligible, at best. Criterion released Lost Highway as a UHD right out of the gate, so if there was...

Upscale from SD to 4K for the "restoration," downscale the 4K to 1080p for the Blu-ray. I don't understand where the "upscale again" is happening?

My understanding was they went back to the original SD digital files and upscaled those. I can't imagine they would start with the film-out.