Unfortunately what you see is close to what there is. I've seen the film in as pristine a state as possible at the Stanford Theater, near Stanford University in Northern California. The original film suffered the same ignominious fate of many Columbia films of that decade. While it is true that some films have been brought back from what appears the grave, it's not always possible. Often the restoration uses new material, and not black magic. There are limits, and the Awful Truth is awful testimony to just how little care some studios took of their finest films.
At the Stanford Theater the owner, Mr. Packard, son of one of the two founders of Hewlett-Packard, is deeply involved in restoring American films - he is one of the leading lights in bringing back hundreds of classic American films. Mr. Packard is also extremely demanding: He once rejected what appeared a fine print of Cary Grant and Marlene Dietrich in Von Sternberg's Blond Venus and had the restoration team do it over again - at rather considerable cost! So when I saw the Awful Truth at Stanford and that condition corresponds to the less than desirable condition on the DVD release that's about the size of it. I just don't think there remains a copy better than the faded example now left. The film is just not in good condition - at least relative to other better kept films from this time period. Columbia material varies, but many Columbia films are in terrible shape, thanks to the miserly nature of studio boss Harry Cohn. As a positive note - For Cary Grant fans the UCLA Film Archive restoration of the 1940 Columbia film His Girl Friday reveals far, far more than previous releases of that ribald lightning-fast Howard Hawks comedy. Both The Awful Truth and His Girl Friday share the same sap-to-end-all-saps character, played to perfection by Ralph Bellamy.
Perhaps some day a better example of The Awful Truth will turn up, and perhaps Criterion will try their skills? Until then this current DVD will be all we have. By the way - The Awful Truth gains tremendously if seen at a movie theater - as is the case with almost any good comedy. Sometimes people are laughing so loudly you can't hear the dialogue - though most of us know it by heart.