text overlays would still be clunky, what's really needed is dynamic video spliced directly into the stream so the viewer understands it's the broadcasters' connection that is poor not the viewer's.

This could be achieved if twitch allowed broadcasters to upload a 2 second loop as a 'placeholder' for connection drops, and twitch could mix that in if it detects too many frame-drops.

It would need to be a setting though because some streamers just stream over a bad connection (e.g. Hitchhiking streams) and wouldn't want that interruption.

I guess this is actually being tested right now. I saw something like this last week, though I've also seen streams just drop.