Installing picture rail in room with uneven ceiling

I'm planning to put up some picture rail in our little entryway (roughly 4'x10'). Similar to the pictures here.. There used to be picture rail throughout the apartment, but we removed it during a previous renovation and thought it would be nice to install some again in a couple places. The problem is the entryway ceiling is super wavy and not level. At its lowest point at the wall, the ceiling dips down about 7/8" lower than the highest point.

As I remember, the old molding left about a 1/4" gap at the ceiling and I think more or less followed the uneven ceiling. That sort of goes against my inclinations, but installing the picture rail level and leaving a 1/4" gap at the ceiling's lowest point means it would have a 1-1/8" gap elsewhere--not great. What would you do? I could sort of split the difference or move the molding down a little so the variance isn't as noticeable. Our ceilings are about 8'-8". I could leave 3 or 4 inch gap instead (but keep it level).

One thing I know I won't be doing is leveling the ceiling or doing any plaster work to fix it. Any ideas?

 

Installing level with a larger gap and have the ceiling and area above the molding all the same color wwill help hide the unevenness!