1. Overhaul all the bearings. If the bearings aren't good, you may want to stop here, before it becomes a money pit. Replacing, wheels, pedals, headsets and bottom brackets, adds up real quick.

2. New cables and housing.

3. Install tires and tubes. Since it's going to be a commuter go with a relatively narrow, high pressure, road tire to decrease the rolling resistance.

4. Clean, lube and reroute the chain inside the front derailleur cage, not outside of it. Never seen that before! The cage looks bent, but should be straightenable.

At this point ride it to find out what else you really need.

5.Grips and saddle of your choice. While you're at it, I'd consider instaling l bar ends too, as it's nice to have an alternate hand position and provides extra leverage for climbing hills.

6. Probably new brake pads.

7. Fenders, if you commute in the wet.

8. Rack

9. Given their condition I'd probably replace the chain and freewheel with HyperGlide compatible ones. It makes a signifigant difference in shifting perforamnce. If you've got the clearance, go 6 or 7 speed.