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Hey welcome to the forum! That looks like a nice car and a great starting point for a weekend cruiser. I'd probably hang onto it and enjoy the restoration!

I used International Harvester red on mine. It is a very good match to the original red color and is available at most Tractor Supply stores.

If the blue wire was shorting to ground the needle would peg on full. Most likely you have a loose connection somewhere that opens the circuit occasionally as you drive. If there is gas in the tank and your needle moves between empty and whatever level of gas you have in the tank, you might...

This thread by 340plot is a great restoration thread. I think page four is where he replaces the frame rail but the whole thread is a good read and his car turned out looking awesome. Check it out here: http://www.forabodiesonly.com/mopar/showthread.php?t=163813