A few years back, Lowes sold a 60 gal 5 HP compressor for around $500. I was going to suggest that as an upgrade for yours, but I just checked and one that size is between $800-$1200.
Given that, I would consider the $200 air pump replacement, although a 3.75 HP compressor is a little on the small side for shop use, IMO. I have an old Devilbiss 60 Gal 5 HP compressor that I bought used for $350, and it's served me well. Electric motors just don't wear out, and if drained on a regular basis, the tank should last 100 years. So a new air pump should get you back in business.
