Looking at your pictures, it appears that the spring that should be supplying tension at #2 is either broken or has become disengaged. At worst, you will be needing a new derailleur. You'll want a long cage derailleur. If you do have indexed shifting, you may need to replace the shifters and possibly cogs as well, as SunTour is no longer in business. Otherwise, just set it up for friction shifting; it's much less fussy about these things.

If you take the bike to a shop they should be able to set you up with what you need.