UPDATE: Fast forward to March 10th 2013. Since I posted this thread I have kept the 500 set up and ready for use. Both my wife and myself have used it quite a bit. Decorated many squares for my denim quilt, repaired clothes, made a Wacky Bag, plus other things. Not a hint of trouble.
Mizkaki's tip about the motor oil on the top bearing worked. Not a squeal out of it since I put the oil in.
So any one who finds a pathetic machine like this one and want's to try their hands at refurbing them, go for it.
In this case, the results justified the effort and cost. It's one of my favorite machines and I'll not be parting with it any time soon.
Joe