Breaking the uv is needed because of mipmaping. I don't see the interest of it if you don't add a proper space between your shells (depending of you anisotropic level, but at least 4 pixels). Add more space or you'd better keep the edges welded. imo you've splitted it way too much, having inner gasps thick of few pixels…
I did, actually; I tried scaling the larger ring so that it was about 3 or 4 times larger; it ended up with the same effect. It's not being resolution-bound, because the pixels are of the wrong color, not just a blur.
What does your high look like? You mention your high has a gap? You really should never bake without a proper averaged cage, its just going to cause you problems. So if you're not doing anything weird, it shouldn't be the projection cage that is the problem. RE: A - Make sure you've not only split the edges, but provide…