Thank you everyone for chiming in. Your confirmation of the failed weld is very helpful. The crack looks innocent and I rode it thinking it's no big deal.
I will not be riding it anymore. This was my main reason for posting here, to have confirmation of a failed weld or I'd convince myself it's no big deal.
Is it really a manufacturing defect? The Pacer was their light weight frame. I don't know how delicate these things are supposed to be. Maybe they expect you to be extra careful with them? I have the Surly 1x1, it's a beefier frame which gets a lot of heavy use without any problems. I'm very happy with it.
I'm reluctant to contact Surly because of the age of the frame, but based on your recommendations I might do that. I like the idea of welding it. If it's under $100 it's probably the cheaper option. Thank you for your input everyone.