The video is about the free wheel, and tire is what caught my eye, because it looks out of round. If the freewheel is working then keep using it, they can be expensive to replace.
I don't think this bicycle was very expenisive when it was new, so don't spend too much money on it. If the frame gets a crack in it, for example, or much of anything else thats costly, then it's time to replace the bicycle.
Ride it a little and think about buying a new or better bicycle in a larger size. The seat post isn't extended too far is it?
Don't build it into urban bike, you need more bicycle to begin with, just my opinion.