It was very good of the previous owner to share that photo with you. I guess. The funny (as in ironic) thing is that had you not seen the photo you may very well have never known. Tubing is very strong for its weight. I am not an engineer but I know from practicle experience that you can bend a solid bar of equal diameter easier than you can a pipe. I discovered this using levers for various tasks and eventually got curious enough to read up on it a bit. It has something to do with surface area. Go figure. So my point is that it is very possible that tube will continue to do its job.
I think you should post that photo in a thread of its own and see what kind of responses you get. I am willing to bet somebody out there has broken a lower tube on their frame while riding. I would be curious to know how they discovered it. I am just guessing that the first thing you would notice is the vibration of the bike would change due to the isolastics being stressed in a new manner. Prolonged use would most likely start to stress things better not stressed, like primary transmissions, engine to cradle interfaces and such. However, I have a hard time seeing a total failure of the structure. There are photos around of frames that have had some extra braces and a few extra gussets added. I wonder if this wouldn't be a good avenue for you here. Spread out the stress and go ride. I would however, say you should get a more educated opinion than mine before deciding this.
On a slightly related topic. My '74 project was sitting so deep in the mud when I found it that I couldn't see if it had mufflers on it, which in fact had rotted off. I was more than a little concerned that the frame would be a wreck. As it turns out the paint was near perfect. The cradle looks brand new. So, what conditions exist for a frame to be that pitted? Not that this will help you sleep at night, but you gotta wonder if there were impurites in the steel to begin with.
Russ