The only way it gets to the lunatic vs sane stage is because the primary failed or was biased. Fixing that (especially at the presidential level since it spans states and time) would help immensely.

Also, each side is voting for the person they think is more sane, so it's partially a perspective problem. There may be some people in the middle, but not enough to win a 3rd party because that 63% who support the idea of a 3rd party all envision something different.