I wouldn't ditch the frame. Here's a really neat one that looks more streetable and shows the potential of the bike: http://www.bikebound.com/2015/08/13/1982-honda-xr500r-tracker/
This guys seems to have raised the front end but thanks to the smaller wheels, the visual balance of the bike is still intact. of course, he also has a modern aluminum swingarm.
Those are cheap, and if I were you and had some fabrication skills I would think about the swingarm conversion first because of the benefits of a single rear shock. Then I would look into the forks and front wheel because what's on there now is a monster that's not gonna be great for the street. Looks like 23 inches. Even going to a 19 will level out the high steering neck problem.