I agree with many of the others, but with minor differences:
If the bolts you show in the picture are representative, they did not fail, they came loose. This has nothing to do with grade.
I would not go up on grade unless it is convenient, and it sounds like it is not.
The threads look like they are not torn nor broken, rather, they looked hammered down by the rim hitting them from the side.
If not for the racket of your engine, etc, you might have heard the wheel making noise each rotation.
I think it is likely that your hub is fine, but I do like the idea of the nuts on the other side of any hole that the tap would not start and run in by hand during the tapping. I would be watchful to make sure the nuts will clear everything in all cases.
The foam in the tire did not cause the problem. I agree with Dave that the lower traction is likely due to lack of conformance of the contact patch.
I would insist on new lock washers now, and each time those bolts are removed in the future.