I think if you are going to restore it, go all the way or forget it. I also have a Navy Luger with little finish remaining and some pitting and am on the fence about restoration as well. I have been holding back as I didn't think Vulcan did rust bluing, and if I ever decide to get it done, I want it as close to original finish as possible.
I know I would never get my money out of it, but once corrosion like this sets in, it will keep on until the pistol is worthless. A quality restoration would preserve it for the future.
As you said, these are pretty rare in Canada, it would be sad to see more of them rot away. I can't even recall seeing a nice collectable one for sale in Canada, so "upgrading" is not so easy.