I have used glue and sawdust to cover some mistakes, but always where it was obscured by some other detail. I think such a repair would stand out here like a sore thumb. I would clean up the chip out and glue in a matching piece of walnut and then profile to match the surounding wood. My feeling is that would make a less visible repair, but that is just my opinion. I think how well any approach to such a repair works is the individuals skill at the technique chosen. I would go with the approach you are most confident you can pull off with a good result.
No matter what you do, go to Highland Hardwares web site and order some DeGlue Goo and some superglue remover. The DeGlue Goo is a vinegar based product that dissolves water based glues like hide glue and the various wood glues. Superglue remover is nitro methane. With these tools in hand, you can undo whatever you do, if it doesn't work out quite right. I have had to glue an old stock back together that was more like a jigsaw puzzle. It took several tries with hide glue to get it back together in a way I was satisfied with the result. I used a half a bottle of DeGlue Goo and a bit of the nitro-methane to remove somebody elses repair attempt. I am really not crazy about using superglue for conservation work.
