I would see how high you can pull that stem. I bet you can get another two inches out of it til you reach the stop mark. Then, get some Nitto B115 bars or Noodles. These have a 5" drop. Yours I would think are around 6-1/2". That's alot. The Nitto's come in a variety of widths. My 115's are 45cm.

For the brakes I would just switch to KoolStops if you can get some that will fit. If those are alloy rims, you will notice a very much improved performance.

EDIT: oh yeah, I also agree about the Cane Creek levers if you want to spend a little more. I have them on my Trek520. They're very good.