Is my ZeroStat Gun Toast ?

Put your finger on the end of the barrel while you are squeezing the trigger, if you get "zapped" it's still good.

So what's the correct way to use the ion gun?

the crystal in those guns has a limited amount of uses before they are shot...

I have gone through 2 of these (back when they were discwasher) and still have one, and I think yes one went bad and no longer had any resistance to the pull of the lever and did not "hiss". You should be pulling the lever very slowly, with as few "clicks" as possible, pulling it quickly produces many "clicks".

The clicking noise usually means you were squeezing the gun too fast...you should be hearing a 'wooshing' noise as you gently squeeze and release the gun.
My gun has an attachement for the nozzle which lights up if to check on ion production.