God, I hate rust! Nothing is worse than watching your baby slowly die of cancer. I lost a beloved '73 240Z years back after damn near fully restoring it. I was showing off for a friend, blasting down a back country road, and hit a slight dip that practically folded the chassis in half. The entire underside of the car was rotted, but the body was perfect. I cried like a baby...
If the '79 really is rust free, then I'd say build it. Make what you want out of it, because you're the one who will be doing the work and enjoying it when finished. I wouldn't worry too much about commiting sacriledge.
Also, on your smoking issue; have you tried Lucas? My last motor was smoking way too bad to drive on the road until I started using a quart or two of Lucas in my oil. That cleared up all of the smoking except for hard deceleration in gear during autocrosses. I ended up getting another 20K miles out of that motor before an apex seal let go at 213,000 miles. Just a thought, and it might let you get by with the motor you've got for another year or two...
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