Here's an extensive plan that I think will help you pick up the skills and confidence you need to work on your bike and let you stage things to spread out the expenses.
1. Clean and oil the chain. This is probably the biggest thing wrong with most Magnas I see. It's easy but well worth doing on a regular basis. Read here:
http://www.sheldonbrown.com/chains.html
2. Replace the tires. This is essentially the most basic task you can perform, and all the tools you need for are things you should have with you for commuting anyway. If your budget is tight, stop by Performance Bike and pick up a pair of Forte Gothams. If you have the money, go for something more puncture resistant.
3. Learn to adjust the brakes. If you get a multi-tool like the Crank Brothers multi-19, it will have everything you need to completely remove the brake arms, put them back on, adjust the cable length, remove the pads, etc. Take everything off and apply grease anywhere it pivots. I'd recommend replacing the pads while you doing this. A set of Kool Stops will make a huge difference in your brake performance. This is probably what you need to know:
http://sheldonbrown.com/canti-direct.html
4. Learn to adjust the derailleurs. Start with the rear, it's easier. This will be tricky with the low-end derailleurs you have on a Magna, but if you master it, you'll be a whiz once you upgrade to something nicer. This part is a lot easier with a workstand, but you can get by without it. Look here:
http://www.sheldonbrown.com/derailer-adjustment.html It will seem at first like you're missing something because it just doesn't work the way Sheldon says. You just need to develop a better feel for things.
5. Replace the cables. You really should have done this sooner, but it's kind of an intimidating job until you've mastered the above skills. You'll want a good cable cutter like the Park Tool CN-10, which is well worth the cost. How-to:
http://www.sheldonbrown.com/cables.html
6. Take the derailleurs off and put them back on. This is mostly a learning and confidence building exercise. It won't improve anything, but you'll feel better about your knowledge of how things work.
7. Replace the bottom bracket with a cartridge bottom bracket. You'll need a
crank puller and a
bottom bracket tool for this job. Removing the old bottom bracket may take a different tool. I'd recommend taking it to an LBS to have that done, because they'll charge you less than the cost of the tool and the old one was probably insufficiently greased which will make removal hard. Have them figure out what size cartridge you need while you're there.
8. Replace the frame. Do you have one of those Magnas with front or dual suspension? If so, that's lots of dead weight. If you head down to
The Recyclery at 9th and Madison you can pick up a decent used rigid mountain bike frame for under $50. You can probably move most/all of the parts from the Magna over to that and then replace them with better parts as needed/wanted. If you've done everything above, this should be a piece of cake.