Saxman,
I enlarged and slightly enhanced the contrast of your sideplate photo and what it appears to me is that some amateur machinist may have tried to do a surface grind of the flat on the sideplate in a drill press instead of a milling machine.
This may have been to remove some objectionable marks the gun had acquired in this area (I noticed that there is a swastika and the number 30 scratched onto the flat of the grip frame) or maybe it was done just to remove some holster rust from laying on it's left side in a damp holster for many years.
The grind marks are too rough to have been done in the proper jig and using the right tools, and as you say it may have been attempted by hand with a dremel.
I don't think welding is necessary because there appears to be enough metal remaining if you want to clean up the appearance a little. Take the sideplate to a good machinist and ask them to smooth out the entire flat surface and clean up the edges of the hump in straight lines. Once that is done it should polish to an acceptable surface... and you can have Thor rust blue the gun for you and It would look great when he gets done with it...
I agree with you that the takedown lever was stamped to match the rest of the gun. The number on the bottom of the lever is the original number.
All in all, it looks like a nice Luger... and would be the basis for a great shooter.
Here is my enhanced photo of the damaged area...
