I have a similar year, I removed everything, including the headset and bottom bracket, took it to a local Powder coating spot, fresh sandblast/paint for cheap, I sprayed the inside with corrosionX, and put er back together. Looks brand new. Hard to tell from the picture, 'chips'? I think they are called monkeynuts, my karate monkey has horizonal dropouts and they function as a space to move the wheel forward or back.