Re: So I inherited a free guitar and I'm wondering if I can work with the pickups....
I think that upgrading a cheap guitar has several advantages.
1) You learn about the guts of the guitar, how it works, the wiring, pots and caps, etc. It can be good when something goes wrong as you have a good idea what might be broken.
2) It will teach you how to be neat and professional in your upgrading so when you put new guts in a more expensive guitar you don't scar it up and do messy wiring.
3) It will improve the sound of your current guitar to give you a little more "growing room." By that I mean, if you get too nice a guitar early on you'll hear all your mistakes and it can be discouraging. By starting small you can work your way up and it will be a case of ironing out the kinks instead of self defeating.
Not to mention it's a cheap and fun hobby that can save you money in the long run as you learn more complex luthiery (like working frets, bridges, etc) without having to worry about messing up your 1000$ guitar.