Phil,
Your touch up has improved the paintwork but unfortunately in reality I think it will take a little more work. What you see in the picture is the locomotives best side, the other side is not quite up to the same standard. If you look closely you can just about make out from the photograph that the side tank is a slightly different shade of green from the rest of the body, I think this was done when the loco was re-numbered. What you also can't see from the photograph is the minor damage to the rear buffer beam which will need sorting out and over the years some of the smaller detailed parts have come away. The paint will have to be removed and some remedial work carried out with the soldering iron.
Regarding the chassis, I would prefer to build a whole new chassis with split frames, suspension and finescale wheels. The current wheels look to be Romfords with the centre drilled out to accept plain axles. Yes, it might be possible to re-profile them but I would prefer to try and obtain a new set, with the correct number of spokes. Unfortunately I can't comment on it's running quality as I've not tried to get it moving.
Scott