If you have free time, and want a project, it's at least worth tearing down to see if it's usable. That was a pretty low-end bike, but free's free and as you say, you'd appreciate the tire clearance and higher front end.

I would just warn against sinking any real money into it; it's easy to spend $200 on nickel and dime stuff for a cheap, crappy bike and end up with an expensive crappy bike. People who rebuild old bikes like this tend to already have a bunch of spare parts.