For an economical city beater try Cogs Cycles, he's got some good used bikes I hear, I'm not too sure on other places for used bikes but cavernmech tells people 20 times a day where to go so maybe he'll help you out. Sounds like you'll be able to get just what you want with the $$ from your Kona, in that case most any shop can hook you up

Don't buy squat from Igor, hell it's a shame karma isn't a quantifiable commodity or you'd be able to improve your own by stealing something from Igors shop. Also Uncle..Jakes? on Spadina is a theives shop too.