Agree with We-are_stevo...
For a beginner i would do nothing more than change the rear mech, perhaps front mech, and cranks.  Keep it all 7 speed for now.  Some nice early 90's dx/xt would transform the look of that bike.  the main thing being getting ride of the plastic covered cranks.  Had them on a trek i once owned.  good honest kit but ugly as sin.
Its scary how quickly the cost builds up. when you start targeting a full rebuild.