Look at this way. EC(UK)261 is very much on the side of the passenger. As you said in your opening post, your inconvenience was because AC cancelled your flight at less than a week's notice and made you depart many hours earlier. At that point, your arrival time was immaterial - it's not in the equation, what triggers the compensation is your revised departure time. So you need to ignore anything that references arrival time.

If the delay at the other end counted as well, then there would be no point in stating the compensation figures in paragraph 1. It would just say "as per paragraph 2". That it doesn't should give you a clue as to why you're owed £520.

There are some examples, BA is one, where if they re-route you on their own services but at a later time (e.g. flight was originally 8am, but they put you on a 10am flight), they will claim your delay was under two hours if the revised flight arrives early. That's not been tested in court as far as I know. If they put you on a different carrier, where they don't have access to arrival information, they would just pay out based on the scheduled arrival or departure time.

The "and" part in the depart one hour before/arrive two hours after in Article 5 doesn't mean the passenger has to satisfy both criteria - it means the airline does, which is a big difference. So there's your other clue. Suppose you were scheduled to leave at the same time, but your long-haul was the one cancelled? You eventually arrive 2.5 hours later. Would you think AC could still half the compensation? Because they can't.