Hi Franz..!
Brown checkered plastic grips are the correct grips, along with wood. There are two types - fine checkered RITZMANN Grips (which are a very dark brown and have very fine checkering), or a courser checkered, light brown plastic grip. My guess is you probably have the RITZMANN grips.
Anyway - a lot of Lugers were refinished, and I can tell yours was by the cannon, extractor, toggle, sideplate and other parts. You see, the edges on Kriegs are somewhat well-defined and "sharp" (with the exception of some of the post-war "parts" guns which may have been buffed/reblued given some parts were "in the white" or various shades of "blue"). Anyway - this is what appears to be a properly matched mid-S, rather then a parts Krieg. As well - even the small parts are plated, as you can see (take down, etc.) - and even on the parts Kriegs, those tended to be "silver" (un-strawed, still "in-the-white") or strawed (except the right-side of the mag release, which would be fire blued or straw, depending)..
However - one of the things I like about yours is that whoever did it - did not go "crazy" with the buffing wheel, as the stamps/proofs are still in VG shape, as you note. The give away for me was the edges having lost their original definition and "sharpness". As well, so has the toggle stamp lost a little "definition".
Anyway - to answer your other question - some saw rather hard service during the war - and they were "souveniers" rather then collection pieces - so it wasn't uncommon to see GI's have them plated/dipped/reblued to make them look better. There are quite a few such examples - and not only in Lugers, but P-38s, PPks, etc. So who actually had it refinished is anyones guess..???
For that, and being a Krieg collector - any Krieg is outstanding
But - I'm biased.. From a collectors standpoint, yes, it is not "original" - but to you, and many owners of re-finished Lugers - that lost value is more then made up by the sentimental attachment to the piece. As this was your Grand-dads, and you have such terrific memories from such a young age - I'm sure it is priceless to you - as it should be... In many ways - it's worth more then just another "original" Mid-S of collector value - for who can place a value on a grandson's/grandfathers relationship??
That's why I respect both values - the Krieg's and your's you have attached to it... In my mind - it makes it a terrific example - and worth hanging on to...