While 160s are more popular than you might think, there is no way I would bother restoring a 160, especially a square one. That said, my definition of "restore" may differ from someone else's.
As for what YOU should do with it, that's your call. What do you want out of it? A 'giro bike? An around town scooter? A display for your den? A rat bike?
As for what _I_ would do with a 160, I had planned on building a replica of a 125 Sport out of mine but had a hard time finding a Sport tank so I went a different direction. After committing to a different tank of course I found a Sport tank so now I'm sort of kind of keeping my eye open for yet another project bike...
I have seen a basically stock 160 with clip ons and it looked surprisingly good. So if you're just looking for a fun bike to ride (assuming you're the type who can have fun on a slow bike), clean it up, put lower bars on it if that's your thing, and ride it. Otherwise, the sky's the limit. But keep in mind to do it right will cost money. Just because it was inexpensive then (and now) doesn't mean it's cheap to rebuild to. It will cost you just as much to rebuild the 160 as a 250 and the 250 is, in most people's eyes, a more useable motorcycle.
Go here to see mine:
http://www.teamyikes.com/160/ducati160homepag.html
Mine started out looking a lot like yours, here's how it looks today. I still have work to do on getting the angle right on the tank and seat but you get the idea:
And here's another site where you can go to see the whole story on it:
http://www.motoscrubs.com/forum/viewtopic.php?f=3&t=35
That's a new forum exclusively for single cylinder Ducatis that's trying to get off the ground. We'll see how it goes, so far it's kinda slow around there. I think I have a build thread on my 160 here too but I've lost track of where it is! That shows you how much progress I've made on the bike lately... hmm...
BTW - yours is a '66 or '67, I'm pretty sure in '65 they still used a round headlight with the square bodywork?
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