One of the kitchens I ran made huge quantitites of spanakopita, using 36 pounds of spinach at a time. We would thaw 3-pound packages of spinach and literally wring out the water with the wringer of a mop bucket. (Don't worry, it was dedicated only to squeezing spinach. :p )
I don't remember the exact proportions, but a 5-pound block of frozen spinach is going to include at least 2 pounds in water weight -- so each block already has 1 quart of water or more. You need to know how much water is actually there: Thaw a block, drain it to almost dry, then measure the liquid that you get. Take that amount into consideration when you add water for cooking and when you measure out your slurry. And yes, measure everything! Not measuring your liquid and your flour leads to the inconsistent result you're getting. Standard proportions should always work, and if you are just eyeballing you'll never get them right. Finally, cooking cheese -- even Velveeta -- can cause it to separate.
But I still think that you are, forgive me, doing it backwards. I would do it this way:
Two 5# packages frozen chopped spinach
1/2# butter (I assume your "2 sticks" are standard 1/4# sticks, not 1# blocks)
1 to 1 1/4 cups AP or bread flour*
Salt, spices (whatever amounts you currently use)
Hot sauce (ditto)
2 1/2# Velveeta, diced or shredded
- Thaw the spinach. Drain it thoroughly (until almost completely dry) and save the liquid.
- Melt the butter, stir in flour and spices, cook briefly to remove the raw taste. *Bread flour will give you stronger gelatinization.
- Whisk in spinach water and extra water as needed to total 2 quarts. Stir in hot sauce. Bring to a boil and cook, stirring occasionally, until thickened.
- Stir in spinach and cook until it is warmed through (frozen spinach needs only a bare minimum of cooking time).
- Add the cheese and stir it in only until melted and mixed through.
This can be scaled up in proportion, and even if doubled will still easily fit into a standard rondeau (1 gallon of sauce plus the spinach and cheese).