So do custom catchalls really increase success rate with LFE? What I've seen so far.

Not at all. Been playing with new custom catchalls and has my success rate gone up any? Nope, still right around that same area, at times it almost seems worse. For instance, last night I ran 2971 news blogs against the 2971 WPMU hosts currently in the public DB, after all is said and done, how many usable blogs do I have? 53...

Really hoping to see some serious improvement in the next release...

That's an oddly low number.

How are you hosting it?

As reference, I routinely run batches of 500 blogs on random hosts and constantly get around 40-50 usable (read: I can post to it) blogs.