Department markings definitely shrink the pool of buyers, but at the same time can increase the price if you find the right buyer. I buy marked police guns if I find the markings interesting. Some Podunk city dept. usually wouldn't qualify, but for that Wyoming game dept. stamp I'd easily pay $100 above the going rate for the gun's condition if it were a Model 15 or other "normal" gun, preferably an older vintage. Your Python guy was unlucky in that he was expecting a Python price for a gun where "normal" doesn't apply to the market, Python people want an unblemished gun, and police collectors won't pay those prices no matter what.
There are also wide variations in marked guns; on the one hand there are lettered guns ordered engraved or specially numbered from the factory, which definitely enhances value. Most famous is the Roosevelt order of the Colt New Police from 1896 for New York's police, but the practice continued for some time; I have a Colt with factory-engraved department number from 1951, and the "Sacramento Sheriff" Model 15 is also AFAIK an official factory variation. On the other hand you have guns with markings crudely struck with single-letter dies or even scratched in with an electric pencil that look like the armorer applied them after attending the Christmas party; those obviously serve more as a deterrent.
Basically, you can't generalize. But if you're ever selling one, put it on Gunbroker or another national platform; you're unlikely to catch the right collector's eye at a local gun show.