"I've just finished my second MSS and I've started editing / rewriting of my first MSS. And I'm shocked at how crap it is."
Absolutely correct. Now consider the following:
1) When I got to the fourth book, the first AND second looked like crap. The third was OK, but will no doubt look like crap when I'm on number 5.
2) When I write a book, it's generally the best I can do NOW. Assuming I learn something with each one it's no wonder earlier books look like junk.
3) It's not a good idea to stick your first book in the mail to agents/publishers as soon as it's done. Write two more (they don't have to be part of a series, you're gaining experience here), then go back and fix up the first. Once you're happy with that one, start submitting and edit the other two while you wait for responses. (To while away time and keep myself motivated, I self-published the books, keeping to very small print runs so I could update them as necessary.)
That was the course I decided on a few years ago, and I signed a three-book contract last week. I wasn't even trying to find a 'real' publisher, they found me.
I'm not saying the above would suit every writer's temperament, in fact I can guarantee it won't. If you're not that committed, use a similar plan on short fiction first ;-)
Cheers
Simon