The leaky tranny and other engine stuff sounds pretty basic. Figure that is a weekend of PM work with decent mechanic skills. I would also dig through all the electrics. If EVERYTHING else works, and you know you could deal with the mechanicals easily, you just have to realize the water damage will still be a big project.
We had a somewhat similar experience to yours when we bought ours (our first RV also) last summer. I searched for our MH during the winter and through Spring. I looked at A LOT of RV's and what we liked really was in the $15 - $20K range. When we found ours for $5000 it seemed like a good buy. I saw water damage, but did not realize what I was looking at. We have only used ours three times, but love the size, layout and features. Buying a nice comparable unit is more than we can afford. So even when I realized how bad the water damage was in the cabover, I was committed to making this old girl work out for us. Yes I ended up doing a complete cabover rebuild, but we will have exactly the MH we want and total investment will land at about $8000 or so. That is a far cry from the $15 - $20K price of nice and well maintained class C's we would like.
I would say that unless you and hubby enjoy rebuilding "stuff" and would be willing to take on a project that will hit high man hours to complete, you should probably sell this one off and buy something that is ready to use.
However, ...... if you guys are like me, you might also be silly enough to take the challenge head on. ;-) At least you have enough info. now to understand what you would be getting yourself into and you know it can be done. Who knows, maybe you could end up with a rebuilt and reliable RV that is ready for many years of fun for less than $5000. You would just have to work hard, be patient and not plan on enjoying the rig until next RV season.
Whatever you decide I hope you end up with the right RV for your needs.
Jose