yes, I have seen that but it's a pretty extreme version there.
Your cassette, I'd guess, is a cheaper one without a full carrier, and the individual cogs have started to cut into the (alloy?) freehub underneath. Typical with cassettes that are made up of cogs and plastic spacers, the steel cog is harder than the alloy freehub but the spacers softer.
It can be salvaged, with care. You need to file away all the burrs so the cassette can then slide on and off again with ease. And then you need to ensure your new cassette has a full carrier like:
http://www.chainreactioncycles.com/LargeImage.aspx?ModelID=20677&FileName=20677-1.jpg
There's still plenty of surface for it to sit on so you should be OK, so get the file out and get filing carefully.