I like it is a very personal decision, and only you know your horse. But, I think I would be willing to invest what I could afford, as well as giving him at least 6 months to see where he ends up. Worst case scenario - no improvement, and you end his suffering then. Best case - he can be a trail companion, light riding, pony rides, etc.
If I was in your shoes, I'd give it a good 6 months. With winter coming, you won't be missing that much in terms of riding. He'll get more used to his stall rest. I'd give him things to keep him entertained in his stall, if he likes stuff like that. I'd try the treatments the vet suggested, within reason/affordability. If he was only ever pasture sound, I'd likely try to find him a new home, place him with an adoption agency if I could find one, or find a "retirement-style" boarding arrangement. Around here, those type of boarding situations are around $200 a month or less (especially if you provide grain - there is one nearby that is $100 a month). You can look in areas farther away, as well, since won't be visiting every day to ride or anything.
To answer your last question - I do think it is a little selfish to have him PTS now, without being given a shot. Check out the unwantedhorsecoalition.com - They have a lot of farms listed that offer retired/disabled/abused horses permenant homes.