Bicycle Mechanics - What to do with a partially worn out bike?

My MTB is on it's last legs so I stripped it down today to see exactly what needs to be done.

I'm now at the point where I can't work out which is the most cost effective/enjoyable option.

1) Fix only the broken components and mate them up with the current working components.
2) Replace the broken components and replace the old but functional components.
3) Buy a secondhand bike.
4) Buy a new bike

The bike is a 1998 Specialized Hardrock so it's hardly a modern frame with great components.
7spd drivetrain, v-brakes, square taper bb

Due to a crash and some heavy handling by me it has a new rear wheel (Mavic 721 laced to a LX hub) and a new fork (Rockshox Dart 3) and a new headset (cheap).

The following parts are broken
Crankset - Big ring is bent, middle ring wobbles.
Bottom Bracket - Grinds rather than spins.
Rear Mech - Cage has exploded
Cassette - Worn to pieces and keeps skipping
Chain - Worn to pieces and keeps skipping
Plus the replacement of gear and brake cables w/associated housings.

If I'm going to the trouble of replacing so much on the bike I'm thinking that I may as well switch to 9spd and replace the shifters at the same time.

Also can I replace the bb with something a bit more modern as square taper cranksets aren't as available? I don't want to switch to an external BB as I'd need to get the frame faced.

If I was going to replace the entire groupset I was thinking of SRAM X.7 as it seems a good compromise between price and performance.

Rough prices seem to be around £120 to keep it at 7spd and £200 to switch to 9spd with all new drivetrain. But is it really worth spending the money to update an old frame when I could buy a merlin Malt 1 frame for £80.

I really don't know what to do with this one.

The hub is still good. Replace the BB and crankset and turn it into a single speed mtb.

And get yourself another bike.

That's still £115 to end up with a single speed mountain bike. However, it is something I had considered as I wanted it for blasting along the canal towpath and some light xc trails. Fancy suggesting a gear ratio - I was thinking 32x16

BB - £15
Crankset - £45
Chain - £10
Spacers and cog - £20
Tensioner - £15
Cables - £10

A point to consider:What condition is the frame in?

Any significant rust or dents? Is the alignment good? Any of the threads (bb, derailleur hanger, brake mounting studs, etc.) damaged? Does it fit you well?

If the frame is sound and you like it, go for the repairs. If not, not.

I'm now at the point where I can't work out which is the most cost effective/enjoyable option.

I think that you're on the right track when you start talking about "the most enjoyable option".

If it was my bike I'd replace the broken parts and 9-speed it. Part of the fun is shopping around for the best deal on the components that you need. Unless the paint is better than I suspect AND a color that I liked, I'd start by stripping and repainting the frame.

Any significant rust or dents? Is the alignment good? Any of the threads (bb, derailleur hanger, brake mounting studs, etc.) damaged? Does it fit you well?.

Frame is in good condition with the usual cosmetic scratches and paint rub from cables, threads are good and frame appears and feel aligned.

The frame fits me perfectly and is quite an old fashioned steep xc bike. That is sort of where the problem is, over the years the trend has definitely been to move towards much more relaxed geometries with wider bars and shorter stems.

In some ways turning this bike into a singlespeed towpath and light trail bike would be perfect as it's quite a steep frame with quite a bit of seat to bar drop. In other ways it's completely not what I want as I'd quite light to start riding more technical trails where a relaxed frame and a more upright position would be useful.

It's feels like I should build this bike into a singlespeed and then save up for a more aggressive bike to accompany it. How I would get this past my wife is another matter, she's resigned to me spending £200 fixing it up but I don't think I could get £150 + £650 as a 'no problem honey' buying decision.

There may be a ray of hope as someone in my club has some 8/9 spd kit they might be able to give me or let me have for cheap, so I could do an interim build using secondhand parts and then get a fancy mtb next year. Although I was hoping to pick up an audax bike so that my 'cross bike could be returned to 'cross duties.

For some perspective, I've gotten bikes in better condition than what you describe, free on craigslist.

For example: this one (http://backroom.hardsdisk.net/antelope830.html) and most recently, this one (http://backroom.hardsdisk.net/giantsedona.html) which was in comparably slightly better condition than yours, as far as I can tell.

If you really have an attachment to this bike, I mean you really love it, spend money on it with the knowledge that it can't return your emotional investment. Otherwise, maybe it's time to treat yourself to something better?

For some perspective, I've gotten bikes in better condition than what you describe, free on craigslist.

That's only because the drive train on the bike is currently missing.

I've had a look on craiglist, ebay and freecycle and can't see anything in the £150-£200 which would be better than me fixing the bike up.

Just make sure you take into account that craigslist only provides *asking* prices, which are as much as double the final sale price.