Well, I have seen much worse. The main thing that appears to need replacing is the electrical tape around the wire bundle. What you should do about it depends upon where your switch or switches will be mounted. The Atlas 6" machines, unlike the 10" and early 12" ones, do not have a place on the front of the headstock to mount the motor ON-OFF switch.
As to whether or not you should wire the motor to be reversible, that depends upon what you intend to do with the machine. There are two common instances where you need to be able to reverse it.
The first is for grinding with a tool post grinder of any type. For proper grinding operation, the the rotation of the work piece and the grinding wheel should be in the same direction (both either clockwise or counter-clockwise. The rotation direction of the grinding wheel for OD grinding should be clockwise as viewed from the tailstock end of the lathe. This will direct the spark stream downwards rather than upwards, for safety reasons. The normal rotation direction of the spindle is counter clockwise. If you try to grind under these circumstances, the RPM of the spindle will be subtracted from the RPM of the wheel, reducing the relative velocity at the point of contact. Any grinding job run like this will take longer than it would if the spindle were turning in the opposite direction.
The second is for any operation that requires you to keep the half-nuts engaged for the duration of the job. One such may be cutting metric threads on an inch-based machine. Doing an operation like this will be much quicker and easier if you can complete a pass, stop the motor, back the cutter out, reverse the motor and let it return the carriage to the start position.
So what you do about the wiring harness depends upon whether you want to make the motor reversible or not. And if you do, upon whether you are going to have a separate ON-OFF and FWD-REV switch. The ON-OFF function should have the switch located somewhere between the operator and the lathe, so that you never have to reach over the lathe while it is running. As you should never reverse the motor rotation while it is running, if you have separate switches for the two functions, the FWD-REV switch can be located anywhere. If you sometimes have children or other knob twiddlers in the shop, it is common to use two switches, with the ON-OFF switch mounted somewhere on the front of or in front of the lathe, and a separate FWD-OFF-REV switch mounted somewhere behind the lathe.
