Alright, please forgive my ignorance because I’m totally new to bikes in general and of course picked myself quite a difficult project to start with. I purchased a used Gaerlan collapsible and would love to fix it up and get it to the point where it’s a reliable/modernized ride.

It came equipped with out dated Suntour front/rear derailleurs and friction/indexed shifters, and a 7 speed freewheel. It was not shifting smoothly no matter how much we tuned it with the old parts. The guy that was helping me said I could consider switching all of the components to better engineered Shimano parts… so that’s what I did. He said any old 7 speed freewheel would do (d’oh!). I purchased the following:

Amazon.com : Shimano Tourney 7Spd 14-28T Freewheel : Bike Cassettes And Freewheels : Sports & Outdoors

Also purchased used Shimano Deore LX rear derailleur and shifters. With the new freewheel installed the chain now rubs the frame (it's too wide), but even worse, the gearing is just terrible. The tallest gear hardly moves the bike at all and I’ve largely got 21 worthless gears. It’s barely rideable.

To make matters worse, when we took the hub off of the rear wheel we also saw lots of grinding and pitting where it should be smooth. The guy helping said it's just about impossible to fix this short of replacing the wheel. I repacked with grease and installed new bearings, but that’s about all that could be done at the moment.

So gurus, what are my options? Are they to stick with the worn hub/rim I’ve got, find a 7 speed freewheel with the proper ratios that will work with the Shimano Deore LX components? Or replace the 451 rims with something more modern and switch over to a cassette with appropriate gearing? Would love to hear what you think is appropriate.

Attached are a few pictures of the original Suntour freewheel.