Originally Posted by GeoKrpan

I've thought about this some more.
Use the 7 speed freewheel and the big chain ring. You will probably use one of the three smallest cogs on the freewheel.
The chain line on any of these with the big chainring will be fine.
Do it this way and it won't cost you anything. All you'll have to do is to remove the derailleur and shorten the chain.
When the the 7 speed freewheel wears out you can get a single speed freewheel or another 7 speed freewheel, either are cheap.
Those dropouts you have aren't very long. They won't allow much fore/aft movement to tension the chain. Keep in mind that a half link may be needed.