I've run K&N's for a long, long time, both on bikes and cars. What I have found is this: Look for any holes or tears. If you see any, any at all, replace it. (A flashlight on the inside will assist in this effort). If you do not, clean it, oil it (lightly) and run it for a few hundred miles. Remove it and look for any dust or particles in the plastic part. If there are any, replace it. Otherwise, you are good to go. On that setup, the filter is in the fenderwell, so looks are not important. Filter integrity, however, is important.
A replacement for that size will run $50-75, so I wouldn't offer much for one in that bad of visual shape. I sold mine in absolutely perfect shape for $125, just for reference.