Upgradeitis can be real costly, and is rarely "worth" it. Replace-with-better as things wear out is about what makes financial sense.
The brake issue is fairly eas to rectify. If you look just at the "inside" of where the cable enters the brake lever base you see a spring-loaded screw. This screw can be used to set the resting position of the lever.
You may need to adjust the brakes to have the pads riding closer to the rim to get decent braking before the levers bottom out against the bar. sheldonbrown.com has a good walk-through of how to set up canti brakes.

Oh, on any bike that's been left for a few years, it usually makes sense to replace pads and even tyres, as rubber dries out over the years.