i was going to say upgrade slowly part-by-part, but it seems like that wouldn't really solve your problems because the frame doesn't fit you correctly, and you wouldn't be happy with that. my opinion is if you really like biking and you can see yourself doing it for a while, it's well-worth it to invest in a new ride that you'll be happy with and keep around for a few years.

btw, parting it out, like a few others have said in on this thread, is in general as expensive if not more so if than finding a decent, brand-spankin new ride altogether.