The cheapest way out is clearly a used 1/3 hp 120V motor, which you ought to be able to find all over the place. I'd probably try to boost that up to a 1/2 hp, if I could find a used 1/2 hp motor cheap, but that ought to be plenty. I don't see any reason to use the 3-phase motor with a VFD, unless you particularly want the variable-speed feature the VFD would give you. That's undeniably nice, but it's not clear you need it.
Personally, I'd put a new (used) 120V motor on it and see if the belt and pulley arrangement of the mill supplied enough variety of speeds to suit my needs. If not, you can always resurrect the 3-phase motor and get a VFD.
But it's really up to you. I don't think there's a "right" answer. Your preference.
Try to make a living, not a killing. -- Utah Phillips
Don't believe everything you know. -- Bumper sticker
Everybody is ignorant, only on different subjects. -- Will Rogers
Law of Logical Argument - Anything is possible if you don't know what you are talking about.