I have a bike similar to yours, and I may raise the handlebars in the future. However the stem is a smaller diameter than yours. I have been collecting the parts I need. I got the bike from the trash, and most of the parts I need are from bikes from the trash.

I have a tube which is the same diameter as the quill stem. It is actually the top of another set of forks, which is a smaller diameter, and fits neatly inside the stem of these forks. It is steel and longer than the quill stem. I plan to cut the end of the tube on an angle to fit the quill. Then buy a longer bolt, and use this tube with the quill, for the first part of the modification. With this new quill stem secured in place, I have another tube which fits neatly over this one, which I plan to clamp over it. Then I have a stem clamp which fits over this tube, and clamps to the handlebars. I picked up a trashed frame, just for the stem clamp.

If you are really creative, and check enough steel tubes for the correct diameter, you may be able to make this up yourself.

I have another one, with a different type of stem connector, which I have been working on, which I plan to post pictures soon. It may give you ideas.

Like you said, lengthening cables becomes also an issue.