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I believe a lower quality CD is used.
You see... that is where it gets confusing... there is no such thing as a "lower quality CD" when doing mass production from a glass master. There is no "CD". Each disk is created from injection molding. It isn't like they have boxes of "blanks" that are ordered from someplace. Each CD is "created" along with the replication.
For the AM disks to be defective as you describe wouldn't involve a few defective disks... it would mean whoever is producing them has a defective process. I have no idea how many disks Hash has made each year for a new version but I assume it is enough that would require some kind of quality control. I can't image with the expense involved in the process Hash would use "Joe's Discount CD Replication". If the manufacturing of the AM disks by Hash was inherently "defective" there would be BUNCHES AND BUNCHES of "bad disks" as you describe.
My cousin is a singer/songwriter who sells his own CDs on his own label. He is NOT wealthy or hugely succesful but he DOES NOT skimp on ANYTHING including the replication yet he still is able to produce an entire album including high quality CD replication for between $10,000 to $20,000. This is everything; studio time, backup musicians, glass mastering... the whole thing.
I have a feeling that you probably don't swap out other disks as often as the AM disk. If you did you would probably find those start to crack as well.
I think this is a result of pulling the disk in and out of "tight" tray slots over a long period of time and the nature of plastic CDs in general. You probably should consider buying the dongle version of AM (no CD required) or just buying two licenses. Many people have this and are thrilled with it. Considering that you are obviously putting a lot more stress on these disks than most people it would be worth any extra expense.
-vern