Relaxin 

And then I just happened to look up at the right angle to see a crack in the head tube. Arggh! It's hidden right in the armpit of the downtube. When I had the whole thing disassembled I don't remember feeling any play in the bottom cup. Is this still rideable? Anyone know of a framebuilder/repair guy on Oahu? I also have another frame that needs water bottle bosses and downtube shifter bosses.

unterhausen

my suggestion is to take that bottom cup out and see if the crack in the lug actually transferred into the head tube. A pressed lug has a seam in that location, it looks to me like it was never welded properly. Is that the original headset?

If it's cracked all the way through, that bike is wall art.

Cynikal 

My guess is that it has something to do with the bends in the fork. Looks like it had a front end hit.

unterhausen

I'm not positive about the front end hit, they often look like that. Look at the bottom of the head tube again, that lug was misshapen from the factory. They didn't face all the way to the bottom of the lug. My advise stands, take out the fork and see if the tube is cracked by inspecting the inside.

Andrew R Stewart 

I, too, see a bent fork blade. Midway down just below the brake pads. But I also agree that the lug was likely made with that crack. Looking at the crap in the crack suggests it's been there for a long time. Pulling the lower cup out would let one see more. Having the fork checked for alignment is also a good idea.

Steel bikes can give a lot of warning of their suffering. I hear moans coming from this one. Andy.

JohnDThompson 

My thought as well; looks like a poorly closed weld seam on the lug, which would be more a cosmetic issue than a structural concern. But do check that fork. It may be just the angle of the photo, but it appears to have been bent back from a collision.