"Would it be seen as sacrilege to cut up a complete stock or not so as long as the finished work looks the part and performs properly?"
IMHO there is no problem here. The rifle is not a museum exhibit, but a piece of machinery that is not functioning correctly. It is thus quite acceptable to refurbish it in such a manner that the proper function is achieved, while avoiding unnecessary falsification.
As to the cut, the wood loss will be nothing like 1/8". More like 1/16", and if you use a fine saw like an Exacto modelmakers blade, or one of those superb Japanesepull-saws (my choice for this kind of work), then the wood loss will be less than 1mm - about 1/32". In other words, the length reduction will be so small as to be unnoticeable. And if, as suggested, a sliver of veneer is required to set the pin to the correct position, then there is no net reduction at all.
This thread on making a duffle-cut repair may be helpful:
https://www.milsurps.com/showthread....t+threaded+rod