But by the Church's infallibility we mean that it is only on those great matters where she knows, that God will allow her to pronounce with certainty.

The only problem with that is that the Church is made up of fallible human beings, who can (and did, probably in a good-faith effort to preserve and promote the Church's authority in matters of faith) twist the notion of infallibility to cover the small matters as well as the large. And the Church's critics, being human also, rightly or wrongly seized on that twisted notion of infallibility to tear the Church down, and thus dissuaded reasonable people from adopting (or retaining, as with my brother-in-law) Catholic (or at least, Christian) belief.

It would have been far better if the doctrine of infallibility had not been made so explicit-- it caused the Church no end of grief, and for no good purpose.

Your point is a good one. Newman was opposed to the declaration of Papal Infallibility at the first Vatican Council for similar reasons. Not that he thought that it was wrong, but that it would be misunderstood in just the ways you mention.

He drew the wrath of an "infallablist" party, led in part by some of the very men he had led into the Church (including the father of the Wilfrid Ward of the quote). And he foresaw that ecumenical efforts would be hindered by misunderstanding at a time when hardly anyone was thinking about ecumenism at all...