Nothing wrong with that bike - you shouldn't need to replace anything but the consumables.

Give it a good overhaul, provided you can beg, borrow, or steal the tools. Regrease the headset, bottom bracket, and hubs (check for pitting and check the bearings), replace brake pads, cables, housing, and tubes tires/tubes if necessary, and maybe that bar tape if it's gross. Possibly the chain. Check Sheldon's site and the Park Tool website for good how-tos.

Be thankful that it's a later model and has cotterless cranks.

Think twice about repainting it - the paint looks to be in OK shape, and if you're commuting on it it's going to be subject to all the crap that goes along with that.