First off I understand that ultimately the answer to this question is up to me. Given the proximity of the damage to one end of the rope (1.5m) I have already chosen to cut the rope. However, I would still like to hear from others as to their own experiences/ thoughts/ conclusions... ...it is always useful to get the broad perspective.
The rope is a Mammut Genesis 8.5mm 50m dry. It is essentially brand new, with the damage occurring during a fall on its third ever route. As the pictures show, while the core is not visible four of the strands that make-up the sheath have been completely cut with heavy abrasion to an additional few.
The rope did its job so I can't really complain, these things happen. That said my previous genesis (retired) certainly appears more robust - the sheath is only a little furry after 7 years of grit!
https://www.flickr.com/photos/tombellfield/albums/72157665233441284