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Yes, the Europeans have held on to traditional bore and groove dimensions which no longer make mechanical sense, and, in my experience, often seem to think that if some oversize is good, more must be better. The industry standards for the .500 Nitro, per the references available to me are: bore .500", groove .512", bullet .510" (the Woodleighs I have hold fairly close to this, measuring .5103" for the SP and .5098" for the solids).
My experience with more modern (read: high-velocity) calibers is that jacketed bullets .002" - .003" under groove diameter shoot quite acceptably well (but not to be compared to full groove-diameter bullets, other factors being equal).
Blow-by is inevitable with undersized bullets, and undesireable, but, in cartridges like the Nitro-express types, which operate at (relatively) lower pressures, will probably not lead to significant erosion during a reasonably long service life. With the slower, cooler-burning propellants currently used (as opposed to the original Cordite), barrel life should be GREATLY extended.
And I can't agree with your characterization of 4831 as very hot burning - it is a single-base, coated, progressive powder, and one of the slower ones commonly used. Under the loading conditions present in the Nitro-express rounds, it burns rather cooler, and at the lower end of the pressure spectrum suitable to the powder type (indeed, somewhat below the originally intended pressure range).
I agree with A-Square's reasoning that, for reloading these cartridges, the best powder choices available to the modern handloader are the slow, bulky ones which obviate the need for any kind of wad or filler, being compressed when the bullet is seated - And I don't personally think that most card or fiber wads are any good as gas seals, while they are suspect in regard to pressure excursions and, possibly, occasional damage to the chamber or bore - best to do without them.

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Sancho! My armor!

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