As a kid/teenager, I always imagined that it was Lefty who had killed Pancho, his friend, and took the bounty to make a new life in Ohio, mainly because of the split vocals between Willie and Merle. Then I was introduced to Townes Van Zandt, the songwriter for those that don't know. Townes' version is loaded with melancholy and emotion in a way that, as you point out in your question, pushes the song in a different direction. Instead of two men, I think it's very easy to see Lefty as being the new identity of Pancho. There's a couple reasons for this: a) the opening verse is a reflection on a man's life from a perspective only he could provide, b). "Nobody heard his dying words" c). "The dust that pancho bit down south ended up in Lefty's mouth"...sure it could mean that Lefty took down Pancho and would carry that burden, but it could just as easily suggest a transition from Pancho to Lefty.
At the end of the day, it's an interesting question. I'm not sure we'll ever know for sure, because Townes never said what the song was really about.
Here's one of my favorite versions...
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