If a seatpost can inserted properly...or at least far enough for safe operation (you could cut the seatpost if it doesn't get past the dent)...I'd go for it. For a steel frame...that dent doesn't look significant enough to affect the structural integrity. Also, you could consider getting it sandblasted, and then powder coated. I recently had a steel frame powder coated and the process filled in most of the small blemishes around the seats tube and dropouts.

Dan