Hear ye this

Am I correct in thinking there has never been such a word in English as 'ye' meaning 'the' (as opposed to 'you'), and that the entire "Ye Olde ..." industry is based on a misreading of an antique script where the 'th' characters appeared to resemble a 'Y'?

Yes. The name of this runic symbol is thorn. See odin.math.nau.edu/ ~wcs/thorn.html and other sites.