My take on the "eternity of misery" thing is that it didn't really exist or manifest until the 1994 flashback episode. As others have stated the previous flashbacks contradict that notion completely.
Damon switched off his humanity in 1958 post Augustine drama and we assume that he kept it off for decades since we see him reveling in his humanity off state in the 70's and Damon pretty much confirms this in conversation with Lexie even if he doesn't give her the exact reason. IMO, Damon seems to be pissed that Stefan sent Lexie to help him rather than come himself which must have stung a bit considering he had held out hope that Stefan would come and rescue him from Augustine and he didn't come through for him then either. In defense of Stefan, he believed that Damon abandoned him on a platform in 1942.
The next time we see the brothers it's 1994. Damon has headed back to MF to reconnect with Stefan. His humanity seems to be resurfacing somewhat and he seems genuine in his wish to reunite with his brother, however this is a vampire that has lived for decades as a vampire with no humanity who is still behaving like a vampire (albeit one on his best behaviour.) As far as Damon is concerned he is behaving but still acting true to his nature. He is feeding from the humans and using compulsion to erase their memories. Unfortunately for Damon, Stefan was having none of it since he was denying his nature completely and had zero tolerance for anything vampire related including Damon. Stefan snapped Damons neck, stole his daylight ring and dumped him in a shed then proceeded to outright reject all Damon's efforts to reconcile. Damon was genuinely hurt, he was rejected by his brother none too gently for being a vampire...the very thing Stefan made him become. In retaliation Damon killed everyone who was left in the house. Of course these actions caused Stefan to reject Damon even more and Damon could pretend that Stefan's hate was because he committed a heinous act and not because he was just Damon existing.
Of course none of what Damon did to those people is justified and Damon does not justify it. It's the opposite because this is one of the times when we get to see that Damon does genuinely feel guilt and remorse, when he has his humanity on anyway. I think any rising humanity within Damon was dialled right back down after this day and old resentments rekindled.
Damon was awful but Stefan was cruel too.
Stefan didn't know Katherine was still alive, Damon kept that secret to himself but Stefan still obsessed over Katherine. He kept her picture close and was shown looking at it rather wistfully in one of the early episodes. I think Stefan was in denial about his feelings for Katherine because despite her compulsions, she never compelled him to fall in love with her. He became obsessed with Elena because of her face. He didn't know her but he must have known she was human. He was obsessed with having to know her, he researched her life, he knew very personal things about her then contrived situations to get meet her in person. Why? because she looked like the person he fell in love with when he was 17 (an angel) and behaved like one...just like he thought Katherine was. He loved Katherine very deeply, enough to be with her knowing that he was hurting Damon and I believe his unresolved issues with her that manifested when he turned complicated his feelings for Elena.
In season 5 it is revealed that Stefan's PTSD was rooted in the loss of Elena to Damon. He then promptly slept with Katherine after realising this fact and although he said he couldn't forgive her or love her again (denial), he did exactly that when she was dying. Stefan got his closure with Katherine in her death arc especially since it was him who finally ended her in "Gone Girl" and interestingly enough, his interest in Elena romantically started to wane as well. It was as if his closure with Katherine afforded him the ability to move on from Elena too.
In contrast, Damon met Elena in the road and instantly understood and recognised that this girl was not Katherine the minute she said "I'm Elena". He was intrigued by her and a little amused and had she not been wearing Katherines' face, she probably would have ended up as his next meal. Once he was truly in love with Elena and had accepted that fact within himself, he never once wavered in response to Katherine despite her many attempts to seduce him.
I agree with Aeryn13 that Damon's attempt to reconcile with Katherine in 2x01 was an act of desperation in trying to supress his growing feelings for Elena- his brothers' girl because despite his shenanigans in early S1 when he was essentially using Elena to wind up Stefan- his shenanigans came back to bite him hard because he fell in love with her in the process and she didn't want him and neither did Katherine- not outside of the bedroom anyway and that was no longer enough for Damon anymore. Damon did not transfer his love for Katherine to Elena because she rejected him because it was clear to me that he was already in love with Elena at that point and if anything his attempts to make something of it with Katherine was about him transferring his feelings the opposite way, which is why he stopped the hot makeout session with her to ask her for the truth. He wanted it to be real like it was with Elena because despite Elena denying her feelings for Damon, he was right, there WAS something real going on between them even if it wasn't love yet from her end, it was a bond and a connection that was growing everyday and it was real.