Realigning rear triangle?

I picked up a old steel road bike a few weeks ago as a project and I think the seat/chainstays are out of alignment. It was impossible to get the rear brake to work because with the rear wheel aligned in the chainstays the rim was about 4mm out at the brake bridge.
It was about 2mm out on one side at the seat tube according to this (obviously the sheldon method assumes the rest of the frame is straight!)

I believe it's about 4-5mm out at the dropouts because the spacing is about that much wider than it should be. (120mm)

It's hard to illustrate but here's a photo of the bike - is it worth fixing/spending money on? Or should I just sell the components?

https://dl.dropbox.com/u/867382/Frame%20realignment/Photo%2024-11-2012%2010%2050%2000.jpg

Have you tried a known good wheel in it? If the dish was out in the wheel you tried,a good one might align better.

And how wide is the dropout spacing at the moment? 4 or 5mm different to 120mm sounds suspiciously close to 126mm, which is what I'd expect in an older road frame.

Yeah, I stuck another wheel in there which runs true in my other bike (it's the wheel that's in the photo.) It's better but not perfect.
I'm reasonably sure the spacing isn't 126mm since the 126mm wheel I have didn't fit and the original rear wheel has a Dura-Ace 7100 hub, which is 120mm spacing.

You could try using a large adjustable spanner to bend them a bit at a time till they are right. I've done this and it worked, don't use an expensive spanner though...
http://sheldonbrown.com/forkend-alignment.html