A new 26" freewheel repair wheel starts at around $40US from a bike shop or Amazon, and there are also literally millions of used ones around, so even if it does need a new wheel, if it's an otherwise working bike then this shouldn't be the problem that totals it. The bike in question is old enough that it may be 126mm or 130mm in back as opposed to 135 like you'd find on most repair wheels, but that's an overcomeable problem if so, either by jamming up to a 5mm difference, respacing and redishing, or getting a 130 wheel.
As for fixing the hub, the first thing to do, before taking anything apart, is check to see how bent the axle is by spinning the left side with your hand and observing how warbly the right side is, if at all. That can easily cause a lot of resistance and bad feels in the hub, but if it hasn't been too bad too long the rest of the hardware might be usable, and a new cheap axle is only a few dollars. (Note that we're not talking about a nice one, ie Wheels Mfg. We're talking about the other kind, a generic unpackaged OEM-level replacement, which may even come with cones that may be helpful.) The next question is whether the cups and cones are totally disintegrating or just rough, i.e. heavily pitted but still have their basic shape. If the former you need cones or a new wheel if it's the cups, but if it's the latter then a new axle, new bearings, and new grease will generally be fine for a low-mileage bike.
If you do need new cones, old random freewheel hubs often use one of a couple different common basic shapes, and so cheap no-name cones often can be made to work, especially if you find a shop that has some different ones to choose from. This is actually the main application where cheap little generic "axle sets" such as the one linked to above can be useful. Determining suitable replacement cones and getting the hub properly set up with them is a larger topic; one place I know of you can read a lot about it is older free copies of Barnett's Manual floating around the internet.
Cones can be re-ground to an extent. You can get pretty sophisticated with it, but a very simple method is put the cone and a locknut on a nice straight axle in an electric drill such that the drill chuck is right against the locknut, so as the cone spins there won't be much run out. Find some kind of dowel or shaft of a diameter that matches the profile of the bearing, probably 1/4" in this case, wrap it in sandpaper or emery cloth, and clamp that in a vise. Hold the spinning cone up to it to resurface it. Go slow so it doesn't get too hot. You don't have infinite material to lose with this approach before the cone isn't the right shape anymore, but it generally works pretty well.
