I think your local guy gave you honest and correct advice. As much as
I'm in favor of high efficiency appliences etc, if your windows are
that old and leaky, that would be the place to start. In fact, I would
put that ahead of replacing your current furnace- it may just need
good maintenance and could last a few more years, but suit yourself as
far as that goes and listen to the advice of this guy who looked at it.
If it is too large, it will tend to short cycle, more so as you plug
leaks/ improve insulation.