OkieFlyer is not qualified to blend a prop. He has no A&P near by, and some wonder why I say fly it to a prop shop and get it fixed.
This is what I love about internet trouble shooting, every body is an expert.
Even tho, they don't know at what magnifying rate that photo was taken. Yet they can determine it is not airworthy.
A&P-IA doing an annual are supposed to be determining airworthiness, So in their opinion it was, and said nothing. They actually saw it, and made a decision, I'll go with that.
FLY that sucker and go get it fixed.