I am pretty sure that I could repair the threads and that the strength lost would not be significant enough for me to worry about. The damage is above the tab washer, Only the lock nut will be effected and it does not have torqued all that tight, in my opinion. That said...

Were it me, I would ask for a complete refund rather than have something on my bike bother me, even if it is not a serious issue. Based on your description of the seller's lack of vintage bicycle knowledge, it could be an honest mistake. However...

The damage should have been disclosed and shown in the pictures and a full refund could be had, based on that undisclosed damage.