Thanks for the feedback so far.

Sparky: the #14 grounding network is not a "fix" but is actually part of the original installation. My neighbor's houses are done the same way. I definitely agree that any new wiring will be new from the panel, hence my motivation to upgrade the load center.

Yikes! A latent fire hazard? (http://www.inspect-ny.com/fpe/fpereport.htm). The FPE panel is history. Thanks for the link.

Hotline1: Definitely a job for a pro. Will of course use Romex with ground. The question is though, is it advisable to install a new load center with my existing "non-grounded" wiring and then wire all new additions into same breaker box properly? Thanks for your suggestions!