The $400-$500 pricing estimate would only apply if this is a fully functional Luger. Fires and operates properly.
Unless you're planning on TIG welding away the pitting, then re-milling the surface and re-bluing it (it is rust blued, not salt blued - a very different process) it might be best to just leave it at it's historic best and enjoy it for what it is.
I think it has quite a bit of character!
If I'm not mistaken, this finish damage and pitting on the left side is typical of storing a Luger inside a holster in a moist environment. It could be an example for a stickie on holsters...
Marc
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 Igitur si vis pacem, para bellum -
- Therefore if you want peace, prepare for war.
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