You can change out your freewheel with a $15 SIS one, and dramaticaly improve your friction shifting. You can then pick up some <$20 SIS stem shifters on eBay and have indexed shifting - my wife loves that set up.

I popped $150 for 8 speed Ergos, new cables ($50,) and they work with $20 SIS 7 speed freewheels - no need to replace the wheel, bend the frame, or nothing. (Although I then went on to spend $400-500 on upgrading the drivetrain to 2008 Campy...it all would have worked with the old stuff, too, but my bike deserved some nice stuff.)

You can also spend a lot more and start upgrading everything.