I put 700 x 35c on my '85 Nishiki Continental and only have a couple mil space front and back, no room for fenders - if you look close at this pic, you can just make out how little space there is between tire and brake bridge. I haven't tried larger tires but doubt they'd fit.
It rides nicely on road/ruff road/packed gravel (I haven't taken it on anything looser), there is no rubbing at all but I can't install the rear wheel inflated and I was disappointed that I couldn't go with fenders. The bike is really a touch small for me so it may move on before too long anyway. With pannier racks, it'd make a very nice long-distance mostly road tourer (which is what it was, after all).
There are compromises for sure starting with a C&V.
