[lugerholsterrepair]

Darin, I would guess 20% of the holsters that come into my shop have a rag stuffed into the toe. Maybe more. It is not uncommon. I agree with Tom.. to avoid the muzzle from punching through the leather AND I suspect to raise the pistol a little in the holster to make grasping easier. One other thing comes to mind..to prevent stress on the lifting strap. It's possible for a Luger to rest on the lifting strap..laying in it like a hammock. That puts a lot of stress on it and where the knot comes out.
Your holster is about average. No real damage..like Ron says..maybe a little rough, worn at the outside notch? Worth around $175-225 IMO. Your magazines look really great! They rarely survive that nice.