There are several additional things to consider before deciding whether a basement remodelling is viable.
1. Do you plan to follow all local building codes? If so, the ceiling is not high enough to be compliant with the International Building Code (IBC) and most others. You will need to gut the basement, remove the concrete floor and excavate. This can create conflicts with the foundation walls.
2. Are the walls well waterproofed from the outside face? If any moisture at all is penetrating the basement walls, mold and mildew will become a problem if the walls are covered with gypsum board.
3. Moisture can also be a problem at concrete floors. Most concrete floors in unfinished areas are cast directly on the ground without a vapor barrier beneath. This allows moisture to rise from the soil. Even though the moisture level may not be severe enough to cause puddles, it will generate mold and mildew if carpet covers the concrete. Any concrete floor in a finished space must have a plastic vapor barrier between it and the soil below. A new, level, 4" slab could be cast on top of the existing slab (with a PVC barrier between the two). Unfortunately this will only aggravate your ceiling height problem.
4. Be cautious of any product that claims to "completely seal all water" when applied to the INTERIOR surface of the basement wall. I don't know how to make people aware that these products WILL NOT PERFORM in actual use. Even if the product works perfectly as a sealer, your basement wall must be PERFECTLY constructed and in PERFECT condition for the sealer to work. This is very unlikely. Waterproofing from the inside of the basement is akin to wearing a raincoat underneath your clothes. If you are going to finish out a basement, do not skimp on the first priority - making the basement DRY. If it is not already 100% dry, do it from the outside! Competent contractors will trench around the house to the BOTTOM of the basement wall and waterproof the wall with a heavy asphaltic mastic or a sheet membrane such as Grace's "Bituthene". A french drain should be run along the bottom of the wall and discharged below this level or run to a sump pit with an automatic pump. All of this is OUTSIDE of the basement. Next, a mesh mat is layed against the wall before backfilling and compacting. The mesh will lessen water pressure against the wall and accelerate migration to the french drain. Finally, the finished grade must be sculpted to drain water away from the house. NOW, let the walls dry out and then remodel the basement.
5. If the watse line you mentioned is running out of the floor, this may be as low as it can be set. A plumber will need to check the flow elevation of the city main to determine whether your line can be dropped further. You could set it lower and install a lift pump, but this is expensive and a maintenance nightmare.
All of this may sound discouraging but many, many homeowners have jumped into basement remodelings and spent thousands of dollars only to be disappointed with the problems they find - particularly with water, mold, and mildew. If you are going to spend the money and do the work, don't start off with a damp environment.