Originally Posted by
HillRider
Contact your local bike club and see if there is a local frame builder they can recommend. He (or she) will be able to do this repair easily and will be able to evaluate if the rest of the frame is in good enough shape to be worth doing anything with.
Looks like we have covered the entire spectrum from fixing it with JB Weld to consulting a professional framebuilder.
Seeing how you bought it for $40 I would think the frame is in good enough condition to use. You've already judged it to be sound.
The hardest thing about a job like that is getting it ready to braze. Get some sandpaper or an angle grinder with a brush and strip the frame down to bare metal in the area to be repaired. Find someone with a torch and show them the prepped frame and ask them if they'll braze it for you. If you have the prep work done then someone would probably do the brazing for little or nothing. Ask around.
My everyday ride, a Trek 820 has rust spots that look as bad as the ones in your picture and I don't think twice about riding it. You can tell if the frame is unsound.