Using DVD Decrypter I have ripped an old DVD to my hard drive. Watching the speed fluctuate up and down I noticed that at some points it fell to 1.6X.

With better quaility DVDs (less or no scratches) DVD Decrypter runs much more quickly.

My question though is this - Does the fact that the source is scratched make any difference when it comes to the final quality of the burn ?

Part of me thinks that a poorer quality DVD will produce poorer quaility files on my hard drive and part of me thinks that when Nero burns those files to DVD the final quality ( PI errors, failures etc) will depend upon the quaility of the burner, the quality of the media used and system considerations.

any thoughts ?

Usually, not if the read drive has good error correction capability. I've encountered a few original damaged DL DVDs that would only read at 1X while ripping. The final transfer to two DVD-5 discs is perfect. No readback issue with the NEC up to 16X.