We had a long chat about this today, and I think we've come up with a plan that we both like.
Despite the leaking HGs, the engine on the Forester still runs strong. The trans shifts like new despite it's high mileage. The AWD works perfectly, and hell, even the LSD still engages nicely.
The kid loves the Forester and she really want to keep it. So, we're going to do our best to make as many fixes as possible. The key is that I'll buy the parts, but she wants to do the work with my help - this way she can learn how to do a lot of DIY jobs. We're going to leave the headgaskets - that's too big a job for us at home and no way I'm spending that kinda dough on the car.
We will do the rear brakes, new rear struts, new door weather stripping, timing belts and give the old gal any other TLC we can think of.
The main reason I'm more than willing to do this is that it just became an automotive shop class. The lessons learned from doing all this work herself are worth 100x the small cost of the parts. In the end she'll have knowledge and a better car. Perfect.