As I see it, we are basically in agreement that a crude version of Marxism was used as legitimating ideology in various nationalist projects. The only question whether the crudeness was a distortion of application or inherited weakness of Marxism. This dove-tails with
Marvin Gandall:
As should the Chinese revolution. But in fairness to those who led these revolutions, they didn't separate the two but, like Marx, saw the development of a modern industrial economy - in these cases, under public ownership - as laying the material foundations for a future communist society. We won't know whether Marxism was wrong or just early in its understanding of the historical direction.
[WS:] We do not know, of course, what was on the minds of Chinese revolutionaries, but if the above is true, this would suggest a fundamental flaw in Marxist analysis - focus on ownership while missing the importance of institutional arrangements (organizational structure, control of organizational resources, legitimacy of authority.) If your assumption is true - i.e. the Chinese and other merely tried to implement the main aspect of Marxist theory - "capitalist" modernization but with a different ownership structure - the difficulties in the implementation of this project, especially the well documented structural problems in planned economy, the mushrooming of gray economy, and the generally low performance of publicly owned 'socialist' enterprises vis a vis Western publicly traded -and thus owned - corporations, can testify to the inadequacy of the ownership-centered approach of the Marxist theory.
IMHO, the problem lies in the fact that Marx used capitalist development in England as the "ideal type" of capitalism in his analysis, but English capitalism was rather atypical model of capitalist development. The typical (i.e. most prevalent - France, Germany, the US, Japan and as Gerschenkron argues - the USSR) model was the cartel model in which institutional organization of the industry was far more important than ownership.
So to sum it up, Eastern European and Third world nationalists did tailor Marxism in a rather crude way to their nationalist projects, but regardless of that Marxism appears to have inherited weakness of its own: too much emphasis on ownership, too little focus on the organization of the economy - which to be honest - he shares with the classical economic theory and its deep-seated aversion to institutions.
Wojtek