Join Date: Apr 2002
Location: Montréal (Québec)
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Where is it. Is it inside the left chain stay?
I assume the bike has vertical dropouts (I can't see from the web picture), and therefore that the wheel hasn't been mis-aligned. However if the wheel is badly out of true or if you broke a spoke and had some tire rub or if you installed a too large tire, then the tire may have rubbed on the chain stay.
Is it safe? I think you would need to compare with a new frame to see what is the shape of a normal left chainstay. The photo doesn't tell us if you just rubbed a bit of paint or if you removed a real amount of material. And even if there is little material removed, the tube might have been flattened and ovalized; comparing it to a brand new one would tell you whether or not that's the case.
As for the hole, check first to see if the metal is thick – and therefore it is a genuine hole – or if feels like metal thinned until there is nothing left. Another sure sign would be to check whether you have one on the right side and if a new frame has it.
Now a new frame might have a painted-on hole, so if you see or feel (with your hand) a dimple around that place, you might well have a brazing vent hole that was plugged and painted over.
BTW, I'm NOT giving out a diagnostic at a distance. If you have a good bike shop, they might be able to assess the situation.