The "bullet" test is a very poor estimation of muzzle wear. A muzzle wear gauge will give a proper reading... and all this tells one nothing of the throat erosion, which is read with a breech bore gauge. Is the bore exhibiting worn rifling, and is corrosion present? If Corrosion is present, are there huge craters, fine uniform pitting or just a hint of dullness to the bore.
There is no quick and easy answer to your question... without any further information, the rifle is worth what the CMP is/was selling them for, $500.
As to your accuracy question, everything depends upon the operator's skill. The rifle, as new, would have been capable of producing 3" groups at 100 yds. Some specimens can far exceed that, especially in the hands of a skilled shooter. Quality ammunition also plays a large role in accuracy. My average with an average M1903 is about 2 inches. I have a couple that will shoot 5 shot groups in the 1.25-1.5 inch range off a solid rest with good ammunition and if I execute marksmanship fundamentals properly.
I have found that the average M1903 is more accurate than the average M1917. I currently have 18 M1903s and have had up to 6 M1917s (currently 1). My 1917s average was always a little larger (1/2-3/4 inch) than my M1903 average, and I have had to work harder to get very small groups. I prefer the smaller aperature of the M1903 for target work.