I would recondition the bike. You will learn a lot in the process. And, if it goes south you can always repaint then. I've had worse condition bicycles that look amazing with a little bit of work.

Here is an old PX10 that looked its age and was worth a repaint but it turned out great!. As far as nail paint that seems like a great idea. I've never tried it but going to give it a shot. Someone mentioned the Tester brand paint. I'm sure you can find a match. I have never tired the Tester but going to work on an Italian this weekend.

Edit: I went to look at your paint again and I think it looks rather good, IMWO.

Try Mcguires products, you can find that at PEPBOYS.