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The relevant part of Neven et al is this: What this means for practice is that one should not instantiate the hash function with a Merkle-Damgård iteration of an $n$-bit compression function. Instead, one should probably simply truncate the output of a $2n$-bit hash function to $n$ bits. (Such a method would in our situation be reminiscent of Lucks’ ...


First off, your equation is correct and there seems to be no calculation mistake. To understand on how to get from $$(2+d)x^{2}+dy^{2}=d+(d-2)x^{2}y^{2}$$ to $$x^{2}+y^{2}=1+e\cdot x^{2}y^{2}$$ one first needs to observe that $e=(d-2)/(d+2)=121665/121666$ holds. The next step is to consider: "What operations are actually allowed with birational ...


The section 'Radix-$2^{64}$ representation' on page 11 of the Ed25519 paper ("High-speed high-security signatures" by Bernstein et al.) actually explains the technique. I should have read the paper more carefully. As pointed out by CodesInChaos, the order of the field is $p=2^{255}-19$ and the 38 corresponds to $2p=2^{256}-38$.

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