You can definitely put toe clips or PowerGrips on those pedals. Those pedals are bad pedals if you DON'T have toe clips, since you're pedaling on the bottom. They naturally turn upside down.

E's ideas are good. Another idea is to spread your frame to accept a modern rear wheel. Sheldon has an article on how. Your frame is soft and therefore easy to do this with. But doing this puts your old wheel out of commission. Not a great loss, since the wheel is nothing special.

Too much time? If you're keeping up with your studies and everything else important, then there's no such thing as too much time. I'm assuming you enjoy wrenching on the bike, and you learn from it, so I recommend putting in as much time as you enjoy. You have to learn how to balance studies, your social life, earning money, hobbies, and a girlfriend if you have one.

Expense matters the same way. If you can afford what you need, you can spend the extra on stuff that doesn't necessarily make sense. Hobbies are worth money. Apparently, you're getting a lot of joy from riding and wrenching, as well as utility, so don't feel like you're wasting money. But keep an eye on the final product. Better wheels and tires are useful upgrades, but you still have a heavy, flexy frame, so don't try to make it a high end racing bike or anything like that. There are more bikes out there to be had, and the biggest challenge is finding room for a second bike.