Your smith may be able to relap the barrel in hopes that it's not as bad as it appears. Other wise, a new barrel is in order along with the proper rod guide and maybe even a new Denny Phillips Cleaning rod..
gregmaz,
Sorry to hear about your barrel, I would be interested in what you use to clean and how you do it that you feel like you have been doing it improperly.
Pinch a bullet out of a cartridge and push it down the bore and then carefully inspect the slug under magnification. It could be cosmetic and not as bad as it looks.