Dork disc = spoke protector (the thing behind the freewheel)
Turkey levers = brake lever extensions (that let you aplly the brakes - although weakly - from the tops of the bars)

You can definately upgrade what you have but to what end? You can be sentimental about it the way it is. Anything you do to it will be a compromise because you are starting with a frame that isn't the right size for you.

I was in a similar position a few years ago with a '77 Le Tour with a 25" frame. Really attached to the bike and wanted to upgrade but, once I added up the cost and realized I'd have a bunch of money tied up in modern components on a low end frame that really didn't fit, I bought a new road bike.