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We don't know what happens to Billy, nor his handgun (I'd assume he'd still keep it, might be tucked away somewhere, where do those shotguns and grenade launchers go when not in hand?), it's the same conundrum as Carlos from RE3.
Carlos is still alive because he shows up during the Ranking page with Jill on a boat, looking worried. When Rebecca told Billy "Billy is officially dead," it was more or less Capcom telling us "he is literally going to die in the forest up ahead."
Billy didn't die after the mansion incident. Rebecca just lied in her report so he wouldn't get court martialed for some crime he wasn't actually guilty of. Capcom actually considered bringing him back for the Infinite Darkness movie: https://game.capcom.com/residentevil/en/umbrella-20210716110000.html
As for weapons... not all of the weapons we can get in the games are "canon", some are there just for gameplay sake. That's why in cutscenes the protagonists are usually just using their default handgun, even if in-game you don't have a handgun at all.
https://www.youtube.com/watch?v=lTnYtz8Oi-o
Also all of his three theories are just that: Theories.
But for Capcom to consider bringing him back, he needs to be alive. It's not just RE5, Billy's return was also an idea for Infinite Darkness as shown in the link I posted earlier. Plus nobody ever said he died to begin with... he just vanished like Carlos.