That sounds like a perfect plan for it. You may also want to consider swapping the hoops. Triple steps are known to be a little fragile, especially once they get rusty, since they're just single wall stamped steel. They can get dented up with a hard bump. If they're solid they're worth a few bucks since they're harder to come by every year and were only used for a handful of years. If you have some local collectors, you can probably trade up for a nice drop-center pair. Drop-centers would still suit the period and provide more worry-free beating. The bike here is a true '37 Zep model:
http://vintagebikesforsale.tumblr.com/post/59220056906/1937-hawthorne-zep-for-sale
The 2-speed setup is worth some money if you were swapping it out. You can even just pull the guts and replace with the innards with that of a standard Model D hub to keep it functional without unlacing. The hub shell isn't important to somebody purchasing it since it's a standard D. The condition does hurt the value since it looks like at least the threaded cable end is quite rusty and would likely need the cable replaced. Good sets usually sell around 250$, but this should still bring half.