To answer your original question a flat bar conversion can be done using your existing rear deraileur however, you will need a new front deraileur. Flat bar shifters are basically mtb shifters and the front deraileur have different amounts of cable pull. 7 and 8 speed rear flat bar shifters are verycheap, they can be had for around 20 bucks and have the brake levers integrated as well. 9 and 10 speed shifters are more expensive and you need to buy separate brake levers. Depending on your drive train this could be cheap or very pricey. I also agree that it sounds like your frame is.too small.