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Credit score higher when item is disputed?

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We're currently working on getting a mortgage and building a house.  My husband's credit score is pretty low--645, but this particular lender will go as low as 620.  The only problem right now is an old item from mid-2006.  It's from an apartment we rented and when we moved out, they royally screwed us.  So, my husband disputed the item, and it shows up as such on his report.  The mortgage guy told my husband that since it's in dispute status, it's not counted in his credit score, so that's why it's as high as 645.  He said before underwriting will consider giving us a mortgage, it needs to be paid off.  


My questions are this:  1.  It says on the report that "This item is scheduled to continue on record until October, 2013."  Does that mean that the next time the collection agency updates with the bureaus, this item will be dropped off since it's so old?  2.  If we go ahead and pay it off, will the "dispute status" go away?  If so, how much will this affect his score?  If the dispute is no longer on his report, it would just show up as an old unpaid debt, right?  So his score would go down.  But if we pay it off in full, wouldn't his score go up a little?  3.  What are the chances that this will actually drop off his credit report?  How would that affect his score?  


Any and all advice/input is appreciated.  And THANK YOU in advance!! 16x16_smiley-happy.gif


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