The canoe has pretty certainly been repainted -- and likely touched up after repainting. It looks like the repainting was done without good (or any) surface preparation, which is part of why there is so much loose paint and why there was some touching up. Before sanding, I would scrape the obviously loose paint off with a putty knife or similar scraper. Using a random orbiter sander, I think I would do a first light sanding with 80 or 100 grit paper, being careful not to gouge or sand too deep. Then I would do a second light finish sanding with 120 paper, again, without getting down to bare canvas. Using an RO sander, the job should not take more than an hour or two.
However, so much bare canvas near the gunwales and some of the small chips through to the canvas/filler on the bottom may indicate that there also was (and still may be) some problem with the first coat of paint adhering to the canvas filler. If so, you may see some continued flaking down to the canvas. I would get as much of the old paint off as I could, and I think I would then prime with something like shellac or Kilz. If there continues to be some flaking off, a little touch up now and then will get you through a season or three.
Putting new paint directly over that old paint without preparatory sanding would be an exercise in futility -- some of that old paint will certainly chip and peel off taking the new paint with it, and new paint will likely peel off some of the old paint that does continue to hold on.
Sanding and priming is a morning's work. Painting the whole hull takes little paint and little time. With water-based paint, you can put one coat on in the morning, and another in the evening, and go paddling the next day. Oil-based paint might take just a bit more time for the paint to dry/cure. I would use water-based paint here, because it will be easier to touch up.
You won't get a world-class finish this way, but it will look, and will be, quite good enough for paddling this season, and for three or four more before you got around to replacing the canvas.
March 2009 as bought
April 2009 hull lightly hand sanded, some spot priming, 2 coats of water-based porch and deck paint
May 2010 now decorated, but the lighting shows the defects in the paint which have been there all along
May 2013 new coat of paint and trim that was put on in April 2011 -- the paint defects are still there -- just not visible in most light
February 2014 After five season of use, the canvas still kept the water out and the paint still hung on, but I now have the time to replace several cracked ribs, broken planking, damaged gunwales, etc, and to give it a new canvas and paint.
And I would say you did very well getting that canoe for $175. Sand it and paint it, and paddle it till you have the time to restore it -- good luck, and post some pictures of your launch and first paddle.
Greg