Very nice and interesting gun, USKEW, thanks for sharing the pics.
The history in your own family makes it even more precious.
I have heard that the death's head was also a symbol of the Prussian Hussars, from WW1, and their emblem very much resembles yours, much more so than the SS skull.
http://forum.axishistory.com/files/prussian_skull_2.jpg
But some have also shown up on WW2 guns.
The way the guns were recycled and put back into service over there, this isn't surprising really.
I would field strip it it and clean it thoroughly, and then maybe have it checked by a gunsmith, although if your Grandfather fired it 23 years ago, and it has sat ever since, I doubt it is unsafe.
But, ya never know.
They like oil and red grease when they are being fired.
They also seem to be a bit prissy about mags and ammo.
I have had good luck with modern after market MecGar mags, and Winchester white box ammo.
There is always a risk of breaking an elderly part though, and extractors, firing pins and ejectors seem to be the ones that become brittle with age and sometimes fail.
I really like your gun, and thanks again for the nice presentation.