Care hardening using case-knit might be a very good idea.
Replacing it with a piece of good spring stock or drill rod, properly hardened and tempered would also work - perhaps the best 'fix'. Sounds to me the firing pin sitting in the spent primer is what is locking up the action.
imho, .004" is about perfect for headspace. I also think that primers backing out only .001" is very good on a single shot - and perhaps shows only .001" headspace on 'that' case.
-------------------- Daryl
"a gun without hammers is like a Spaniel without ears" King George V