Quote - How can you get around that if the skydome is part of the render? Ever try changing the levels of the depth file in PS to add more contrast or does that just create a different problem?

That won't help. The Z-depth is limited to 256 levels of gray, regardless of how "deep" the scene is.

Imagine you have a scene where you have two characters, one just in front of the other, and a skydome. The skydome is 2,560 feet behind the front character. This will mean the scene is divided into zones roughly 10 feet thick, and everything that falls within that zone will have the same shade of gray. If your second character, the one in back, is within 10 feet of the front one, they'll be the same shade. If the second is 11-20 feet away, it will be one step darker, and so on. So, in order to have one out of focus doing lens blur in Photoshop, practically speaking you'd have to change the image into pure black and white.

In the above scenario, that's easy. Now imagine if those those characters were standing on a street and you could see the ground. You can't reduce it to black and white because you need that constant transition from near to far.

The way it was done, doing one good render and then doing one crap render (turning off and turning down everything just to get the z-depth info) is the quickest way of doing it.