First bike restore... pedal crank issue, see pics

[nfmisso]

what is your budget and your intentions - restoration or reliable rider?

I always go with the reliable rider.

You have what are called cottered cranks. I would replace the crankset with cotterless.

Something like this:
http://www.amazon.com/Sunlite-Crankset-Cotterless-44x170-Silver/dp/B000AO9YWQ/

and you also need a new BB like this:
http://www.amazon.com/VP-Track-Bottom-Bracket-68x107mm/dp/B005LA918Q/

and bolts
http://www.amazon.com/XLC-Head-Crank-Bolts-15mm/dp/B0043MQV2W/