In my opinion, it should be upgraded to OBD3. There shouldn't be anything wrong in receiving an extra warning that something is wrong with your car.
Like Scrhoude said, your car is probably not gonna last much longer. I would look at it as a heads up sign to either "I should invest on repairs" or "I should invest on another car" or whatever options comes to mind depending on the financial situation.
Secondly, the fear of the government monitoring your daily driving routines is ridiculous. If your not doing anything wrong, then what's to fear?
Scrhoude wrote...
I think it would be a good heads up for the average driver, but in reality you have to weigh whether or not you believe the government and manufacturers will use this for good or bad. A better system is to simply educate the populace but we all know how likely of happening that is.