So from what I recall, BGT was supposed to just allow you to play BG1 in the BG2 engine, and it did very well, but I'm noticing some small BG2 bugs of mods I know I've installed and made work before. For instance someone informed me that the shorter Chapter 1/2 cutscenes/dreams was affected by BGT compatability and I'm wondering if Item Upgrade (http://weidu.org/item.html) is also something that may be being messed with by BGT or if it's just me actually installing it incorrectly somehow?

Regardless, would uninstalling BGT maybe fix these problems now that I'm done with BG1 for the moment? and would anything weird go down if later I did a tutu installation instead?

BGTutu actually makes a separate installation from vanilla BG or BG2, so it shouldn't mess with your BG2 game at all. I can't really speak for your other questions, though.

The main difference between Tutu (or Easy Tutu) & BGT (Baldurs Gate Trilogy) is that Tutu changes BG1 to use the BG2 game engine & only works for BG1. You can then export your character to the standard BG2 or start a new character in BG2, just as with the vanilla BG1.

BGT changes BG1 to use the BG2 engine & turns BG1, BG2, & ToB into one continuous game.

The shorter chapter 1/2 cut scenes is one mod that doesn't work with BGT.
There may be others, but I haven't come across them.

IMHO, having to wait through the full cut scenes every time outweighs the benefits of BGT.

I haven't used the mod you link to, but I have used a similar one, & it only worked if installed right after the fixpack.

If you have just finished BG1, and are not far into BG2, then I would do a complete reinstall before starting a new BG2 game.
Save your last BG1 save or export & save your character file if you want to keep the same character.

BGT is too big a mod to uninstall & then carry on with the same game.

Both Tutu & BGT need to be installed on a fresh BG1/BG2 installation.

I would do a clean installation of both BG1 & BG2 & then install EasyTutu.
This will give you a 3rd game directory "BaldursGateTutu" (where you mod & play BG1)
You can now uninstall BG1, & you have the clean install of BG2 (where you mod & play BG2 & ToB)

If your using Windows 7, don't install in the default C:\ProgramFiles\.......
Run the setup programs as administrator, & turn off your antivirus program until you install your mods.