Gentlemen, sorry I've been out of touch. Things tend to get in the way!
So, let's see here: Jonny, that's exactly right, except for a small nomenclature issue.
There are two stones that we are talking about--Nagura and Slurry stones. They are different animals--Nagura are a special kind of stone from a particular mine. They are divided into many types, and I'll get into that more soon, I promise.
Nagura are used for rough/medium honing--taking out chips, rebeveling, etc. These are made of a different grit than the honzan, and they DON'T break down as smoothly as the honzan.
Slurry stones, which in this case means a small piece of "honzan", are used to finish/refine the edge. This is the slurry that breaks down finer and finer, and so you can use a diamond plate instead.
As for taking out the scratches, I really can't say. I've never tried it--but I guess it would depend on the thickness of your slurry, the hardness of your steel, and your pressure, although you shouldn't be using much.
One thing I would recommend is, if you're coming off of a rough diamond stone, I would give it a round or two MORE than you think it needs, because the deep scratches from the Diamonds would lead to some sawteeth, which is what we want to avoid on these edges. And you don't need to worry about doing it too much, unless your stone is really, REALLY thin.
Bart, I can't deny or confirm--all I can say is, as I understand it, the more rounds of slurry you give the razor, the "purer" the edge will be. My goal at this point is to make 100% honzan edges--no residual scratches from other hones. According to the guys here, the best way to do that is to use natural honing BEFORE the finish, as well. So Nagura, of if you've got serious trouble an Aoto or Iyoto.
Your experience with the "dulling barrier" and the refreshing edges is pretty much in line with what I have experienced, though I'll be honest-I don't do ANY tests until after the 2nd slurry round any more.
I hope this helps!