I grew up beating the hell out of cheap...errr...budget oriented bikes like this and have a soft-spot for these beasts, so while I generally go along with the idea of not wasting much money refurbing one - I hate to see you just give up on yours, especially considering its long relationship with you and your family. I don't know if you care much about bike history in general, or yours in particular, but I'd almost be willing to bet that it was made for Western Auto by Murray.
I know I already trolled your crankset, but seriously folks
- I think that it is your problem, not the BB or rear spacing:
Look at all the extra...garba...errr...metal - maybe it is just the pic, but I gotta think that is why your drive-side arm sticks so far out.
Good luck whatever you decide...