Batteriesnare is right...the barrel cut was designed as one of the mounting points on military M4 rifles for a grenade launcher.

For mounting a scope, you'll need one of two setups:
  • Either x-tra high rings, or
  • find a "riser" and you can use med or low rings to mount the scope.
For an example of a scope mount riser set-up, find a picture of a Bushmaster Optics Ready Carbine or the same rifle from S&W. I like the riser option better because it just seems a little more stable and you can tailor the height of the scope depending on the height of the rings (low, med, etc...). The real problem is not the front sight...it's the fact that with the AR-style rifle the bore is inline with the stock. You have to raise the scope up high in order to properly line it up with your eye.

Don't worry about the front sight. Unless you have a very low powered optic chances are good you wont even be able to see it through the scope. For most optics it's too close to focus on and it's either barely visible (kind of just a shadow in the lower part of the scope) or it can't even be seen with any optic over about 4x.