The 26" wheels you're considering would be 559mm diameter - meaning that the brake reach would be an issue. You could compensate for that by building up some drop bolts, assuming you have access to decent tools (drill, drill-press, a good bench vise) and can fabricate. Conversion to 650B is another option, with reasonably good tire options available and low rolling resistance vs. the old mountain bike specification.
The other approach (probably the best one) is to locate a junker Varsity and swap-over the parts you need.
If you go for the conversion - be prepared to spend a lot more than that Varsity is worth, unless you have better-than-average mechanical skills and/or are willing to dig around for stuff that works. eBay, Craigslist and the local coop will be your best friends should you decide to take this project on.