Flame/Frost would still exist under and_into's suggestion, as far as I'm understanding it, because you'd have flaming/freezing launchers. It just wouldn't clog your inventory. You might want to carry 2-3 different launchers, but I think that's a good system and something people tend to do now anyways. I'd still like to see steel bullets, because slings are weak and having all the raw damage increases they can get really helps, but if you want to emphasize slings as low damage, that might further distinguish them.
I'd support that system, just do not give nessos dispersal ammo please
Offbrand ammo shops are a thing, Nessos can still generate flaming (or poison) arrows, they would just be a unique drop in the same way nessos is a unique mob. That or you can just special case him to have normal arrows and he magically double brands them.