It boils down to this:
If you buy parts and assemble or modify a weapon prior to it having been in a customer's hands, you are a manufacturer and need an 07 FFL.
If you sell and deliver a weapon to the customer who then has you perform modifications for him/her you are a gunsmith and need an 01 FFL.
It all revolves around when the modifications are made.
Pre-Delivery to the customer = manufacturer = 07 FFL
Post-Deliver to the customer = gunsmith = 01 FFL
In this instance, to be square you'd want to deliver the parts to the customer first, then accept them back for assembly/modification.
It mostly revolves around the taxes. If you sell components only, you don't have to collect the excise tax. Like say that STI sells me a bare receiver for a 1911. They don't have to collect the excise tax, because that part in and of itself is not a functional weapon. It is assumed that another mfg will have to invest additional work into the piece to make a "gun", and that that mfg will collect and remit the tax to the feds.
On the other hand, if I buy a "short block" kit from STI (slide, frame, barrel, all pre-fit), and also buy a "completion kit" (everything else) at the same time, STI has then delivered to me a complete weapon (more or less), and thus are liable to collect the tax on it.
The ATF has recently clarified that cosmetic operations such as applying camo dip or painting or engraving are not considered "manufacturing" because their sole use is cosmetic. Bluing, Parkerizing, Anodizing, Melonite coating or Ion Bond coating do not meet this definition because they also impart either corrosion or abrasion resistance (or both) along with cosmetic beauty.
If you have to modify parts of the weapon (file, cut, weld, machine, polish, etc), and intend to do so before it has been in retail customer's hands, you need an 07 FFL.
If you intend to assemble complete weapons from parts kits before the parts have been in retail customer's hands, in any volume to speak of, you will need an 07 FFL.
It's not that much higher than an 01, and the reporting requirements for a small operation are not that big a deal.
It was also clarified to me that if you do not wish to import or export or sell to Fed Gov, you are not required to register your 07 business with the State Dept.
Honestly, if you have a question, call your local ATF field office and ask them.
In all my dealings with them, I've not once had any trouble with the people on the ground at ATF. The big wigs may or may not be nice folks, but the rank and file people that I have dealt with have been nothing but helpful and easy to get along with.
Call them up and ask for a clarification, you don't even have to give them your name if you don't want to.