Coins Used in Jewelry: Illegal to Deface?

I've seen some really beautiful jewelry made out of coins, such as rings made out of quarters, and coins which have been stamped with words like "lucky" on a penny, or otherwise drilled to wear as a pendant, etc.  And there always seem to be comments such as, "Isn't it illegal to deface currency?" and "It's not legal to sell or wear defaced coins!" and so forth.   So obviously there is a lot of confusion and misinformation about what you can legally do to currency.

So I checked with the  US Mint website, and this is what I found:

1. Is it illegal to damage or deface coins?

Section 331 of Title 18 of the United States code provides criminal penalties for anyone who fraudulently alters, defaces, mutilates impairs, diminishes, falsifies, scales, or lightens any of the coins coined at the Mints of the United States. This statute means that you may be violating the law if you change the appearance of the coin and fraudulently represent it to be other than the altered coin that it is. As a matter of policy, the Mint does not promote coloring, plating or altering U.S. coinage: however, there are no sanctions against such activity absent fraudulent intent. 

This means that if you try to change, for example, a quarter so it looks like a dollar coin, that's fraud.  Or if you alter the date on a coin to a more rare (and valuable) date, that's also fraud. 

But smashing a penny in a penny rolling machine, like you can do at Disneyland, is not fraud and is perfectly legal.   Drilling a hole in an old buffalo nickel to wear as a pendant is legal.  Stamping "lucky" on a penny is perfectly legal.  Forming a quarter into a ring is also perfectly legal to sell, buy and wear.