Hi J,
I would believe that the curiosity value if this gun far exceeds the $200 estimate

, but at the same time I also believe that this gun will not go into the $20000+ price range.
The scenario you sketched looks plausible enough, but as I said before, the only answers will come through thorough research of the past of the gun.
The only question that I have is the weird looking front of the frame. It looks slightly bent and it does bear traces of some correction work applied to it. My initial thought was indeed removal of engravings, but after studying the left side of the frame I've abandoned that thought. Could the deformation be the result of placing the grip in a vice in order to perform the welding/modification work to the mainspring?
If the person who replaced the spring did a dodgy job, could that also explain quite rough handling of the frame while performing the modification?
I've been welding thin sheet metal of cars together for quite a bit and I can't imagine that 'normal' welding would cause the front of the frame to be bent like that. Perhaps a torch was used? A torch spreads the heat over quite a large area, rather than arcwelding, and this could explain the front gripstrap deformations.