Well it is not a cream puff tractor. A livestock loader tractor takes a beating day in and day out. The dealer is offering you about what the trade value would be.
The better way to go would be to buy the other tractor out right. You can get a better price on it that way. Then sell the Oliver 1655. There are collectors that would love to have it. You should be able to get in the $10,000 range for it.
Also I would take the loader off it and sell it at a consignment sale. The loader does not add much to the value to the collector crowd and actually hurts it to many guys looking at it. The loader will bring the $1500-2500. So add that in with what the tractor will bring and you can almost double the trade value.
For a everyday working loader tractor your Dad will be happy with something newer. You did not say what brand he was looking at but I have a Oliver 1655 that I love but my JD 6400 MFWD loader tractor get ran ten times more.