Yes, Ed, you are mostly correct. The OBS resolver in the 209 is not compatible with the GPS unit. The 209A has a resolver circuit that provides output to the GPS that is switched by the switching unit (MD-41). When in NAV mode, the OBS output is for the VOR, and in GPS mode, the OBS output goes to the KLN-89 for course guidance output that gets indicated on the indicator.
You wouldn't be able to use the glideslope needles for anything in the GPS mode unless the GPS unit is WAAS capable and certified for LPV approaches. (Lnav and Vnav)
That's a great price on an older, but very functional approach certified GPS system. To get everything...excellent.