David,
Thanks for posting the photos... The good news is that the barrel IS a Navy barrel. I can tell from the height of the front sight base. Why it is shooting so high is a mystery... Perhaps you are holding the gun too lightly and the muzzle jump is placing your shots so high. Try a firmer grip on the gun and see if your shot placement improves.
A P.38 front sight will fit the dovetail, and may be high enough that it will correct your shot placement. The only problem with a P.38 front sight has a squared top edge on the blade, and the Luger rear sight is a V-notch... If the vertical shot placement is better you can modify the front blade to have a more Luger-like inverted-V profile with a fine file...
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regards, -John S
"...We hold these truths to be self-evident that ALL men are created EQUAL and are endowed by their Creator with certain UNALIENABLE rights, and among these are life, LIBERTY, and the pursuit of happiness..."
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