Steel shot is not expensive, but it is ineffective (IMHO).....bismuth and TM are better and act more like lead, but it is quite a bit more expensive. However, how much more expensive if you have to shoot several times to try and finish off a cripple?
Your gun is basically a lower end variant of the Steven's 311....they were made for sale in discount stores, hardware stores, Sears, ect. It is an EXCELLENT field gun and if your granddad took good care of it, it should be quite sound (I have two 311's....one in 12 gauge and one in 20 gauge). The 2 3/4" on the side indicates that it is indeed chambered for modern shells, and should work just fine for TM and/or bismuth shotshells.
As far as steel goes, I wrote to Savage (Stevens was a division of Savage) when steel first came out in the 70's and I asked them about the use of steel shot in their guns......basically, I was told NOT to do it, for the reasons I cited above (barrel welds).
As far as chokes go....if the barrels are 28" or longer, chances are the gun is choked modified and full or full and full.....this should do just fine for waterfowl hunting.
There is no such thing as a 3" 16 gauge, nor do I think that there ever was nor there ever will be. As far as needing a 3" gun to take ducks, I think that is just a bunch of Malarky perpetuated by the gun and ammo makers......some days I wonder how we were able to kill anything (ducks, turkeys, deer, pheasants, ect) prior to the advent of the 3" and 3 1/2" shell.
Hope this helped.....good luck this fall. :thumbsup: