Fixing up your old bike would probably be a good exercise for him, and may ignite a spark for such a hobby which could serve him well for many years. However, if you want him to learn to enjoy riding for its own sake and have a ride he can enjoy for many years, buying a modern bike is probably a better answer.

If he sticks with it into his 20's and beyond, he'll eventually come to appreciate the Raleigh for what it is. If he's forced to "settle" for it now, he'll probably hate it for being heavy, clunky, and much less cool than what his friends have. In 3 years it'll be covered in duct tape and stickers and converted to a fixie. :^)

But what do I know, really? My daughter's only 1, and I'm trying to be patient until I can reasonably teach her to ride...