@tyj8tim: Share difficulty has nothing to do with reject percentage. Or with overall profits, or with anything that matters.
I actually have my doubts on that with a switching pool.
I agree that IF we mine at a pool that only mines one coin, then the variance will average out and you will see a steady payout after a few hours or 24 hours.
However, at CM we get a lot of stale rejects. And I'm assuming these are not all counting towards our hashrate (correct me if I'm wrong). From my understanding, stale rejects are the ones that's too old because the pool already pointed to the new block. So if someone has a ~10% reject on average, that means ~10% of the time when he finished his share, the pool already moved on and his calculated shares are useless. This is especially a problem for a pool that's hopping around and getting into block times that's less than a minute or even 30 seconds.
So IMO, by lowering the share difficulties, you can shorten individual miner's share round time and minimize the probability of submitting stale shares.
Share difficulty isn't really a round time. It's more of a threshold. You're calculating shares all the time, but most of them have a value below the difficulty threshold, so you're not submitting them.
A share difficulty of 500k doesn't mean you're mining away on a huge chunk for ages (which
would be bad for fast block times), it just means that you only submit a share when it randomly happens to have a value over 500k. But that single share wouldn't be any more likely to be rejected than any diff 16 share.
Also, empirically speaking, Middlecoin has a difficulty of 1024 but I never had particularly high reject rates there, always around 2-3%.