I really would check out a highly rated local bike shop, they can tell you a lot by looking at the bike.

The best option in my opinion would be to pay a good wheelbuilder (gotta be a few in Chicago) to rebuilt the rear wheel around a new rim unless that wheelbuilder checks your old wheel and says it's up to snuff for touring still. If it's the original wheel it might just need new bearings and grease as well a quick check to make sure the spokes aren't seized. If they are then I'd recommend a new wheel built around the existing hub. You can then match the rims of a prebuilt front wheel with stainless spokes; something like a sun CR18 rim would be a good choice. I toured on them and they are a great value. Sticking with the 7 speed hub that is on the bike makes for a stronger wheel and I agree also with the person that suggested a 13-34 cassette, it'll work well with your current crankset.

When you're at the local shop pick up some drop bars and get those shifters/brake levers back onto the kinds of bars they are made for, it'll also be more comfortable. It might also be worth changing the bottom bracket bearings to a cartridge unit if they need servicing, as well changing the cables and housing if anything feels sticky or is showing signs of wear or damage... hard to assess these things from a picture.

I highly recommend using the widest tires your frame will take, wider tires are more comfortable and tend to flat less since pinch flats are harder to get. I have moved away from schwalbe marathons and onto the more supple tires that are lighter and quicker, even for touring I don't mind fixing flat or two and I enjoy the increased speed and comfort that the wide supple tires bring. If you don't like fixing flats or want to avoid the hassle the marathon supremes are much nicer to ride that the standard marathons and not all that slow.