After you see if you enjoy riding it, take a look at the frame - if has cracks, it's probably not worth fixing. Then I'd say the chain, chainwheel, and sprockets probably all need to be replaced. Anything else with rust on it needs to at be checked out and possibly replaced, but some of the hardware might just need cleaning. I'd also tear down the bearings (headset, BB, hubs) and repack them, if not replace them. And as you pointed out, the tires are probably rotten. The front brake cable and pads probably should be replaced as well. The frame could probably stand to be stripped and powdercoated as well. All in all, a lot of work.

Sounds like fun