I agree. It's a shame about the damage. Do you have any idea what caused it? I was going to say "burn through", which can happen to smoking pipes, but it looks almost like tool marks or teeth marks on the outside around the hole. Mice? Attempt to inlay a repair that was abandoned? I couldn't tell you for sure about smoking with the lid closed. If the pipe was vented through the nostrils, the bowl would probably never be loaded above that level. It seems more likely to me that the lid would be a loose-enough fit to allow plenty f air in. That's purely a hunch, though. This pipe has a beautiful stem, too. Looks like it might be horn.