I suspect the latter. Much of the storytelling aspect of filmmaking is done in the editing room, piecing together takes into a narrative and deciding what makes into the finished product. A terrible movie can be made into a decent one (or better) with a skillful re-cut.
Most of the time flops have had too much material cut out to hit runtime requirements ("nobody will watch a 3 hour movie!"). Kingdom of Heaven, Batman v Superman, Watchmen, Alien3 all get better with restored material.
Blade Runner is interesting as there are 3 different versions, all about the same length but with some very different scenes. Theatrical also has a terrible voice over which was later removed.
The Shining is one that gets better when shortened - most feel that the 119 minute European version is better than the 144 minute US cut.
Apocalypse Now is interesting - Redux (193 minute) is a slog compared to theatrical (147); but Final (182) is probably the best version and a great example of the balance needed.
There's also the video 'How Star Wars was saved in the edit' which has a lot of good information on what editing can do. The video has kindof been co-opted by the internet as definitive proof that George Lucas is a talentless hack, but it's really not that much different than what happens on every other film. https://www.youtube.com/watch?v=zEHRNS-Scrs
Almost Famous is another example. I love the movie. But then I watched the director's cut which added 40 minutes more and it was very meh. The jokes weren't as crisp and there were scenes that didn't really add anything and just slowed down the pace.
One of the more infamous examples is Vincent Gallo's "The Brown Bunny". Roger Ebert panned it after its initial screening at Cannes, Gallo responded by wishing Ebert's colon cancer would relapse, and Ebert retorted by saying that his recent colonoscopy (in which Ebert was allowed to watch the footage of the medical camera as it progressed through his rectum) was more entertaining than "The Brown Bunny".
Gallo eventually went back into the editing room, and emerged with a new version of the movie. Ebert watched this new version, and afterwards was quoted as saying "It is said that editing is the soul of the cinema; in the case of "The Brown Bunny," it is its salvation."
Gallo fought back, insulting Ebert for being overweight and even, strangely, put a curse on his colon. Ebert adeptly responded, "It is true that I am fat, but one day I will be thin, and he will still be the director of 'The Brown Bunny.'
I assume that 1) they know and 2) they can never, ever admit during or after that they knew... possibly not even to most people in their personal life.
There are a lot of things that a production can't recover from, no matter which other elements are excellent:
* Bad director
* Bad cast
* Bad writing
Get those 3 things right, and you can recover from bad special effects, bad costumes, bad make-up... even lousy cinematography or low budgets.
A lot of the most compelling art happens when people fully commit. But if you fully commit to something which is a little off, a brilliant performance can become something that feels "bad" but you still can't look away.
If an actor gives a committed performance while filming, they could have the sense that it is either amazingly good or amazingly bad. And either premonition could be right or could be wrong.
(Not to get into what makes something "bad" anyway which is a whole 'nother subject...)
