Thanks for your thoughts Adam.
1. This other site doesn't have great content. It has a lot of links from pages with decent authority, but it didn't earn these links because of great content.
We are a small shop and creating content is a challenge just for one site. 301ing would certainly be easier.
2. This other domain has a focus on a nearby town that really isn't our area of focus. I think we could get lots of leads by getting this site up and running, but we really don't have the staff to handle this new geographic area.
From a keyword perspective, there is an interesting overlap. The subject domain focuses on Wenatchee Washington. Our site is about Leavenworth Washington, which includes Lake Wenatchee (which is an hour from Wenatchee, but shares the Wenatchee keyword.)
Geordie