If you're not determined to have brifters, you can bring the cost of the conversion way down.

You'll need a drop bar. That can be cheap or expensive, depending on which you choose(of course). My personal preference is the Nitto Noodle Bar, so let's start there.

Nitto Noodle-----$48 plus shipping

http://www.modernbike.com/itemgroup....176662&TID=367

Brake levers----$37.80

http://www.modernbike.com/itemgroup.asp?IGPK=2126181579

As far as shifters, your best bet is to go with bar end shifters. I don't know how many speeds your cassette is, so here's the eBay search results for "bar end shifters".

http://www.ebay.com/sch/Outdoor-Spor...p3286.c0.m1538

As for your question about fenders, you need to look for the eyelets on the form and the rear dropout. It will look like a little loop above the fork tab and the rear dropout.

If it was my bike, I'd forgo doing the drop bar swap. Just mount some fenders and go with it.