The real question is whether you are willing to put in the time into fixing and cleaning up this bike. Do you have the tools to do it?
If this was my bike, I would start by totally disassembling it and cleaning everything. I don't necessarily mean that I would take it all apart at once, but everything needs to come off at some point. You are probably looking at 40 hours of labor, including the time spent reading the Park Tools website.
You will also need to grease the hubs, bottom bracket and headset. That is probably 10 hours. The main costs will be buying the tools to do this.
You will need to replace the cables and housing. This is probably about $30 and 1 hour. The tires and tubes will need to be replaced. $60 and up. The chain will surely need to be replaced. $20
Then there are a bunch of small things like bar tape, brake pads etc. $50
If you don't have any of the specialized tools to work on the hubs, bottom bracket and headset, you will probably need to budget another $100 or find a bike co-op, that will let you use theirs. This will add to the time it will take to get the project done however.
I am fairly confident the wheels will need to be trued. The freewheel and chainrings may need to be replaced.
Don't forget, there is always something unexpected that needs to be fixed.
I like doing this kind of work after the kids go to bed, when it is quiet and there are no distractions.
Are you willing to put in that kind of time and money for this project? I am sure you will be rewarded with a good unique bike.
If it was the right size, I think $100 would be the most I would pay. That is taking into account that I already have all the tools and a lot of the parts.