Well, difficult to be sure, as the muxing itself has to be seamless. But, since the original DVD uses seamless branching, I suppose the cells are seamless. So, IMO, you can safely set the seamless flag. Anyway, most players are OK with that flag set (including at the layer break position), even if the flag should be clear.
Not sure why your player pauses, but, to get rid of the cells of PGC 2, it is better to remove them completely, instead of replacing them with blank cells. This way, the remaining cells will be contiguous, the seamless flag can almost certainly be set, and the player should really play the cells seamlessly. However, that might be difficult to do if there are chapters containing only removed cells, as you will be forced to shift the chapter points.
BTW, PgcEdit sets the warning when there are gaps, not when the VOB ID changes. A change in VOB ID doesn't mean that the cells are not seamless.
The STC discontinuity flag must be set when the VOB ID changes, that's correct. So, IMO, using 10 (seamless + STC discontinuity) is a good choice, but the presence of the blanked cells ruins the advantage of the seamless joints.
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