It's amazing what you can do just using the Levels dialog in Photoshop.

To get this version of the example image in the original question, I converted the greyscale image to RGB at 16 bits (Image->Mode) to give PS some room to smooth out the adjustments, then hit ctrl+L to bring up the levels dialog. Moving the black slider until the shadows were well-defined fixed the tonality. (There was no actual black in the histogram, but the darkest darks are only a hair above black.)

Then, because I can't leave well enough alone, I gave the image a quick pass using the Topaz Labs DeNoise plugin and killed a couple of the most obvious scratches using the spot healing brush (in CS3) before re-converting to 8-bit.

There was a lot more spotting that could have been done, and I suppose the curve could have been tweaked, but the main problem with the source image was simple fading. Fading of the darks and staining (yellowing) of the whites are the most common problems with old B&W photos, and the effects of both of those problems can be handled with the sliders in the Levels dialog. (With colour photos, the three colour channels will have faded at different rates and need to be adjusted separately). If there are actual blacks and whites, you can use the eyedropper tools to set the black and white points, and if there is something in the image you know should be about the same tonality as a grey card, you can use the grey point eyedropper for that.

There was no discernable sky content -- it's very likely the picture was taken with a blue-sensitive panchromatic film using no filtration. A lot of old black and white snapshots are simply not going to have a useful sky since you need to use a yellow filter to get any tones much lower than white. If you want a sky, you need to invent one or transplant one from another photograph.

Photo restoration can get to be a long, involved process, but the initial stages -- the steps that are going to account for most of the improvement -- are generally fairly simple. There will be a lot of work anyway, so there's no sense making things harder than they need to be.