I thought about this while driving around today. The middle novella is presented in situ, with no reference to its origin in either the preceding or following novellas. The prisoner in "V.R.T." makes reference to his intent to write a novel ("I was thinking of doing a novel, a great many books have been written in prisons—and it would only confuse my case. I will destroy the pages at the first opportunity") but that could be a Wolfeian head-fake. The best evidence this theory might be true relates to the unanswered question of just how David knew the details of Abo culture in his discussion with Number 5 and Mr. Million - the shell-flails, the use of roots to poison the water, etc. - would be easily explained if David included these ideas in a novella he wrote as an adult.
David is the most likely character to have literary ambitions - he is well-read in literature from an early age. The story could in some respects be a retelling of the events of "The Fifth Head" from David's perspective. We aren't told how David reacted to the homicide of Maitre, but as we know he lost any inheritance ("...the court—so I was told much later—could find no proof that David was indeed my father’s son, and made my aunt his heir") and had sought "the political power that money could buy". We can guess that he might have been a little peeved at Number 5's homicidal actions. If this theory is true, it could be that Sandwalker is meant to represent the more athletic David, and the more bookish Number 5 is represented by Eastwind. Eastwind does kill (along with Number 5) his father figure Lastvoice, who like Maitre is a kind of mad-scientist (dissecting women and all), but also (by order of the two-person theological elite of which Eastwind is the junior associate) Eastwind's biological father Bloodyfinger - we are told by the Old Wise One that Sandwalker bears a considerable resemblance to Bloodyfinger (who also provided extra food to the young Sandwalker) - and since they are twins, of course he would be the father of Eastwind as well. Both Maitre and Lastvoice seek knowledge of why things are not going they way they should.
The Old Wise One could well be an analogue for Mr. Million, in this retelling of events. I'm always suspicious of conspicuously unnamed characters in a story by Gene Wolfe, and of characters who drop quietly out of the narrative. The unnamed secret police officer examining the file relating to the prisoner in "V.R.T." could well be David, who we are told went to the capital (of St. Croix) after Number 5's imprisonment. The officer seems to be in the capital while he is examining the file, and could eventually have access to the novel the prisoner plans to write, which could be tweaked to include elements of David's family history.
Why would the story be falsely attributed to John V. Marsch by David?
I don't know, at this point, or if this idea holds water. Any thoughts or comments would be appreciated.