Hello Travis,
Yes, I have one of these lathes, and it has served me fairly well. It's relatively stiff if you level it and bolt it down - may need a couple of tries to get it right, because of settleing and temperature extemes moving the concrete floor beneath it, especially in the winter. This machine is quiet, forgiving, and fairly easy to repair and maintain. The biggest plus to owning a South Bend is the wealth of parts and information available on this forum, and elsewhere. The spindle bearings are adjsutable and fairly bulletproof so they'll outlast me. MAKE SURE you REMOVE THE ADJUSTER SCREWS - which are under threaded plugs - before removing the spindle bearing caps to adjust the bearings. A lot new owners just remove the plugs and don't see the small screws underneath the plugs. You will ruin the $800 bearings.
This example is pretty well tooled. High points include the taper attachement, the Aloris tool post, and the faceplate and chucks. You won't need much if anything to get you going. It looks like the ways are in not-so-great condition, but the picture may be deceiving. Regrinding the ways and then handscraping the carriage , tailstock, etc, to fit is quite expensive and time intensive. Prices vary from shop to shop and range from $1000 for regrinding only to $6000 to completely rebuild. In all likelyhood, you may not need more accuracy than this machine has. Take advantage of the offer to test the machine - bring a 1" cold rolled sttel bar and make some light cuts. Measure the taper in the resulting turned bar. It's probably OK; and this would give you data to make your decision.
I wouldn't worry about backlash - you might expect .010 - .030". 0.050" is getting to be a lot but is still workable. Look for the difference in backlash between center position and at the extremes of travel. If backlash is the same everywhere, ALL the backlash is caused by a worn nut. If the center has a lot more backlash than the extremes of travel, the screw is worn. Members of this forum sell crossfeed nuts, and member Steve Wells has a thread about how to modify / replace your cross feed screw. Lots of Longitudal backlash usually indicates the bed ways are worn.
Look for missing teeth on the backgear behind the spindle - this is fairly common. This condition is repairable, though. Again you can search this forum for repair instructions and people who can do it for you.
This machine is three phase. A VFD is more like $1000, not $100. You can make a rotary phase converter (rpc) for $200-$300, or buy one for $600.
There is no good way to check the oil that I am aware of. Look for wear and lacklash and scoring on the ways and gears as an indication of the oiling history and usage. There are quite a few lubrication points on the machine, so I'll add this link to Steve Wells' site where he generously posted a lubrication chart and other essential info.
The SBL Workshop - Home
http://www.wswells.com/data/general/1967_10-16_Lube_Chart_S6503R.pdf
$2500 might be a good price for you. In Detroit I paid $1700 for a machine that is in a little worse condition but with a little more tooling. You may be able to wiggle down a little but $2500 isn't bad.
I probably gave you too much information, but I hope it is of some help.
Regards,
Wayne