A replacement quill seatpost will cost you what the bike is worth, so baby it. Replacement is not really a viable option. Last time I needed one, I bought a COMPLETE bike just to get one.
Barcons are a good thrifty option. Thriftier yet are stem shifters, not the prettiest in the world, but cheap and functional. Seven speed STI levers are going high. I have used 8 speed STI on 7 speed bikes before, limiting out the highest (small sprocket) gear. Or at least that is what I recall doing.
Forget the repaint, that will consume half your budget alone, and not give you any performance improvement.
Note, around here, a nice modern USED bike is not going to cost you $500 to $600. Should be able to find a nice STI bike (RX100 level or similar) in the $300 to $350 range. I've bought several under that price range, but they were deals.
This guy on ebay sells one occasionally for over $150 (this one did not sell). Or go with a Campy version for $390 (it did not sell either this time). I watch for quill stem auctions, and they eventually do sell, for a lot.
http://www.ebay.com/itm/American-Cla...item3cbddc975d
http://www.ebay.com/itm/Campagnolo-R...item2a1643596c