It would be a good candidate for singlespeed but I'd take it completely apart, clean and regrease the bottom bracket and headset. Are the rims alloy or steel? If steel, I'd replace with alloy and also get a decent brake for up front.

Couple of links for you if you need help: http://sheldonbrown.com/singlespeed.html

http://www.on-one-shop.co.uk/