Simba--As JK pointed out, it is confirmed that the No. 3 Mk 1 grenade frag bodies were machined from steel. I mentioned in an earlier post that some of these grenades do show the 'notches', but not all of them do. I also pointed out that the examples which have the notches show them all the way around. This is due to the long grooves being milled in the manner of a gear with some kind of jigged setup. If the picture of a clear section of the upper ring doesn't bother you, I'm sure the 'notch' camp will be happy to have you.
Seth--Bapty is still in business, has already been asked about this prop, and they don't like to talk to people about Star Wars apparently. I'm sure at least half the people who were working at Bapty during the first Star Wars have retired or died by now.
JamesK--Just to clarify, although "all" the No. 3 Mk 1 grenades were machined steel, some later grenades were cast. Seems to me a later rod grenade was cast, for instance.
Lee–pictures of original grenades can be found in the
archived grenade thread (link). As has been said, this feature of ‘cutting too far’ does occur on some examples, that’s not the issue.
Here's an extreme example of 'notches', just to clarify the concept. Also a great example of grenade patina. Apologies if this is your image, I don't have the author for this one.
Extreme Notches (link).