Well, the thermal blanket that had been a concern is no longer a concern. Engineers ran some simulations of what might happen with the "puffed up" bit of thermal blanket near the cabin and were unable to tell if it would remain in tact or would potentially fly off during re-entry. The possibility that it might fly off during re-entry and hit (and damage) another part of the orbiter sparked questions about doing a 4th EVA on this mission, to cut off the extra bit of blanket and therefore remove the problem all together. However, after testing mockups in a wind tunnel, engineers have decided that they don't think a piece of this blanket will fly off. Thus, the need for a 4th spacewalk has been eliminated, and Discovery is 100% cleared to re-enter and land on Monday morning. This is great news, now we just need for the crew to come home safely for the first mission since the Columbia tragedy to be an overwhelming success.
Finally, YES, the various administrators in the past (probaby Goldin, most of all) SHOULD have considered upgrading this fleet of shuttles LONG before now. But, NASA's budget is fairly miniscule (a fraction of 1% of your tax dollars go to NASA funding), and I honestly believe they took an attitude of, "Well, it's still working, so why bother." I'm not saying I agree with this philosophy, but with so many other things that NASA does, I'm sure that the "functional" status of the shuttle fleet was considered to be "good enough" and thus the previous administrators wanted to spend the money elsewhere. In particular, the late 80's and 90's were an era of many satellites and orbiters to study other planets (Mars, Jupitur, Saturn), as well as increased robotic exploration of Mars. Other science going on at NASA address space survivability. There are a number of experiments going on to determine what to do about consumables (including determining how best to grow plants in 0g and how to recycle wastewater). Also, there has been a lot of ongoing research on human factors for spaceflight. This includes physiological experiments, experimenting and engineering to figure out how to do medicine (diagnostics and treatment) in space (what would happen if an astronaut got appendicitis while on orbit?), and also studing hyman psychology and experimenting with it, all in preparation for longer-term space travel. In light of this, it may be somewhat easier to understand why, with a seemingly well-functioning shuttle fleet, the administrators have opted to do other things with their money than figure out what to do next. I'm not saying it was the "right" decision, but it may be understood why it happened.