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I've studied the circuit and HP has the 723 5 volt regulator configured with fold back current limiting (quite aggressive pullback). I think if the charred looking R12 .56 ohm current sensing resistor has drifted high in value(possibly more so when hot), it could very well be the cause your 5 volt supply voltage backing down. In the parts list R12 is specified as wire wound, .56 ohms, 5%, 2 watt. Personally I would try a new resistor before attempting the 7805 conversion. Attached a really good article from MODERN ELECTRONICS / February 1987 explaining the capabilities and design setup of the 723 regulator.
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