If you have the ability, save it. I've seen several people do full tube frames (74 5.0L Z, tube80z), modified frame rails(mark g? the VH45 240z), replaced frame rails due to rust (240hoke), accidents (Myron, wheelman, 74 5.0L Z again). Provided nothing's really bent, you should be able to save it, I think.
And yes, I could not agree more. I'm pretty surprised by the amount of people totally willing to part out and cut up good, solid shells for what seems like pretty stupid reasons. It is my biggest pet peeve in the Z world. I'm sure everyone thinks "it's just one car, it won't matter!", but the reality is when you have 200 people thinking the same thing, it kinda adds up.
Oh, um, exactly how much rust does your car have? It certainly looks like it has more than mine... if it's solid other than that frame rail spot and your now torn frame rail, then you might consider fixing it. If it's a rust bucket, I suggest you move on, unless you've got a lot of money burning a hole in your pocket.
It seems to me, you just think of these as just another car, which is fine, but you should realize not everyone does. While I totally agree it would be easier to just get another shell (something I have considered doing myself), some people see these cars a little different, ie, NOT just another car, but rather something special. Some also may have an attachment to their car for whatever reason, and some may just want to fix it for the experience.
Personally, I'm probably going to fix mine and use it in some way, even though it would be MUCH MUCH cheaper to just get a straight CA car... which I'm still considering.