I've been owner of (or maintained for a family member) about 5 Gen 2 Priuses ranging from 2006 to 2009. All are now approaching 200k miles. These are all Midwestern US miles in the vicinity of Indianapolis.
All 5 needed new traction batteries at 150k-160k miles on odometer. Only 2 gave MIL lamps on the instrument panel at time of battery replacement. All exhibited excessively high engine RPM under load (e.g. passing or going uphill). 3 had prominent and noisy use of the ventilation fan in the back seat indicating that the battery stack was warm. 3 showed erratic bar behaviors on the screen similar to what you described. 3 had poor gas mileage due to the battery being bad.
All 5 improved to normal behavior with installation of new traction battery.
I think the faster than normal charge and discharge you describe is a consequence of the battery's internal impedance rising with age. High battery impedance means the voltage reads are higher than normal under charge and lower than normal under load.
One of my 5 went into limp home mode when its battery finally died. You don't want to be in limp home mode at night on a busy street. The vehicle speed was under 25 mph with the instrument panel lit up like a Christmas tree.
Another downside of limp home mode is that the car has insufficient torque to drive it up onto a UHaul tow dolly, so you're looking at paying for a professional tow job.
To my knowledge there is no damage to the car by letting the battery totally fail. However, you stand a fair chance of getting rear ended in limp home mode.
Stay away from rebuilt traction batteries. I tried two and their lifetimes were fairly short. At this point there are very few youthful Gen II cells in the used market from which to do battery pack rebuilds. You'd simply be replacing bad cells with someone else's worn cells.
BTW, you can purchase on the internet some diagnostic software than runs on a laptop computer that (with an OBDII adapter module) allows you to read cell voltages via the OBDII diagnostic port. This tool allows you to see how cells sags under load. Having this measurement capability is a way to get solid tech data on your battery's state of health.
I got all of my new battery stacks (new Toyota-supplied cell clusters retrofitted to someone else's old battery cage) from AutoBeYours in Scottsburg, IN. Steve and Jenny can install a new battery stack in about an hour at reasonable price.
I find that a properly-tuned 200k mile old Gen II Prius with a new traction battery drives like a new Prius, although the valve clatter from the motor will probably remind you that the car isn't new.
Indianapolis, IN US