The original gearing looked rather low. I wonder if it was owned by a very old guy who needed to winch himself up hills?
I'm not sure what I'd do with that headset. The rust will clean off with Barkeeper's Friend or similar, but will come back if it gets damp. I'd either find a NOS replacement or (and I'm a philistine, I know) fit a Tange Falcon cartridge headset, which is functionally superior, lighter, and still looks reasonably vintage.