We do Universal every year the 1st week in August. So, we were there again this year during the first week of August and yes, it was very, very crowded. More so on the weekend (8/7, 8/8) than during the previous week.
However, the lines seemed manageable - as long as you had a sensible touring plan. Your big rides in the morning and evening and the shows and smaller rides in the middle of the day. No different than planning a day at WDW.
Although we did have FOTL, this time we did look at the wait times on the regular queues because we were deciding whether or not to use our 1 time before 3pm FOTL. It was late morning, early afternoon before the lines became long. And only on the biggest rides. Most were in the 10-30 minute range.
And we pulled Hulk express passes on one of the busiest days at about 1:30pm. (Gave them away because return time was after the 3:00 FOTL deadline). When we passed Hulk again about 3:00 on our way out to go to Mummy, the machines were shuttered. So they did run out of express passes by 3:00pm, but certainly not by 10am. But heck, on that day, it was so packed, even the FOTL line on Mummy was 45 minutes. I know because we were crazy enough to stand in it

In the 6 days we were there, that was the only day where the lines were huge in both the FOTL and Regular queues- and only in the middle of the day. Morning and evening were fine.
I also suspect that for some people, the line might seem longer if they tend to get irritated seeing FOTL people getting right on a ride. One day, on Jaws, the regular queue was not at all bad at less than 15 minutes. We went in the FOTL line, which queues right next to the regular line. We were the only ones in the FOTL line, so walked right up and were first in line for the next boat. A family in the regular queue was berating us that it wasn't fair that we could walk right on, they had been there for at least 45 minutes(impossible), yada, yada, yada. So, perhaps, as you said, your neighbors were embellishing their story a bit to make it sound worse than it was and maybe they were just ticked at the FOTL lines.
Since you are staying at DVC, perhaps you could split your days - do a couple of mornings at Universal (the get 5 days for the price of 2 is a great deal) and do your afternoons at Disney. That way you take advantage of the morning slow times at Universal and can still pick up your FP's for Disney afternoons.
BTW - our DD16 has special needs and didn't have a problem at all with that very busy week.
You will have a great time whatever you decide. But listen to phamtom and the rest of the "regulars." They can give you the real scoop.