IMO, this is an "up to you" decision. Me, with one that bad, I would discharge it as stated above and get a new one. Why risk you and your family for a $10 battery, you know?
With that said though, I have an 1800mah pack that was in a very bad crash, and looked like this one. The thing is still holding a charge 3 years later and is not puffed.
If you are tight on money, then just keep an eye on it. If you see it starting to puff, get it out side on concrete or something and let it vent. I use a grill personally to let them do this.
The saltwater is to pretty much dead short it and kill any chance of there ever being any voltage to start a fire. 1/2 cup of salt per gallon of water will do the trick. Leave it in there for a week. The same can also be done by hooking a 12v light from a car up to it and just letting it run. Once the light is dead, toss it in the trash. Again, I would wait a week though.