Am I better off buying a new bike, or upgrading my old bike? Half a year ago I started to use again my old Schwinn Woodlands MTB for commuting. I didn't want to spend a fortune on a new bike, I wasn't certain that I would like to bike commute daily.

Bike has kinda old equipment: screaming Shimano cantilever brakes and Shimano SIS derailleurs (48-38-28, 14-28). Steel wheels. Highest gear is too slow for me. However, the good old heavy CrMo frame is comfortable.

Since then I used the bike a lot mainly for commuting, touring. Now I'm at a crossroads. I'm thinking of buying a new bike (brand new or used) or re-equipping the old bike.  I would like better brakes and a bigger gear ratio on a workhorse.

If I buy a new bike, I would probably choose a new or used Merida Crossway 100D /Speeder/S-presso. I think a trekking bike would be better than MTB because of speed. I've tried a Crossway but at first it was strange, although I loved the big gear ratio and disc brakes. 

If I would reequip my bike, I would use Shimano Alivio V brakes (maybe with red/blue Ritchey brake pads), derailleurs and shifters and 7-8 level sprockets. I also need to change wheels.

My dilemma is that is it worth to spend half price of a used bike to my old bike?  to reequip? Or is it better to sell it and buy another (new) bike. There are used bikes with quite acceptable prices.

2012 models are on sale nowadays, although I'm a bit skeptic that I really need a brand new bike.

What do you think?
As @Daniel said - I would suggest looking for a newer second hand bike closer to what you want. the cost of components, along with compatibility issues, will like make the exercise more expensive with a bike that has a few niggly problems that just won't go away.  However, it you are particularly attached to the frame, it might be worth while. Consider getting a donor bike, as whole bikes are usually significantly cheaper than the sum oft there parts.

If you go down the seconds hand or new path, Jamis (an I am sure others) make mid and high quality steel bikes (Look for the Dragon range in MTB) for those of us that appreciate the advantages of steel. At the highest end, the weight penalty is so small it can be ignored. 

Edit :  List of steel road bikes