I don't think it's using just the barometer for altitude because pressure can drift dramatically day to day and this would equate to different starting altitudes even though you're in the same place. I've noticed it's always pretty close actual starting altitude if given time to adjust.

Garmin's running line only uses GPS altitude which is lacking is precision (probably for the reasons you mentioned) and could mean huge jumps in recorded altitude. For example, the NYC Marathon is a relatively flat race with a total ascent around 700'. If I do a search on motionbased for the race, I see a variety of results. The most egregious is this one with a recorded gain of 12,000'. Another with only a 2,000' ascent. The problem I see is that any spiking in altitude has a huge hit on total recorded elevation and these spikes can occur anywhere there is poor GPS coverage.

I think the 705 tries to be clever and set the altitude at the beginning of a ride, but it's not always correct and still looking for a manual override.