Over the years I've seen lots of examples where the paint was more rigid than the metal or plastic under it and chipping and cracking such as you have all over the frame is typical of this sort of bond failure. Especially if it dates back to the early days of the low volitiles content water based paints that occured through the late 80 and well into the 90's. A LOT of those finishes had major issues with long term bonding to the substrates until they ironed out the issues.
With this being a steel frame, as suggested by the lugging and colour of the exposed metal, I'd say get the old paint removed and then have it re-finished in some manner that you want. Obviously it's well worth looking it over with a critical eye for any signs of issues while it's stripped down. In particular look for signs that the upper part of the fork legs are bent back and out of line with the steerer tube. That is always a sure sign that the bike ran into something bad at some point. But I suspect that all will be well as steel typically ages very gracefully if not run over by a truck. The sort of paint issues you're having are not consistent with an actual crash from what I'm seeing. Note that the paint crackles are on the REAR of the fork legs. The last spot they would be if the bike ran into something head on. Assuming it passes inspection I would build it back up without a second thought.