I think I would attempt to do a restoration of the front sight block and bayonet or at least find a gunsmith to do it. These carbines aren't too uncommon, so parts should be out there.
Sorry I don't have a better view of the frontsight and bayonet attachment assembly, yet! (This is the same model carbine, just a fixed sight version.)
The "A" and "X" would just have to stay.
As for the Hornady ammo, they use a controversially large bullet in their ammo. Works great in some Carcanos, but gives folk fits in others. If your carbine doesn't like it, you may want to try the Prvi Partizan ammunition. Bullets are smaller than is usually ideal for these rifles, but they will probably work. If they give you extraction problems, then you may have extractor or chamber issues.
Since you aren't having case head separation incidents, then headspace isn't likely excessive.