Cross post from Bicycle Mechanics:

So, long story short, I have an old bike with a 531 frame from Austro-Daimler. The wheels are toast, pitted hubs and bent rims. The bike overall is low mileage, and I'd like to convert it into a commuter.

I know the first two upgrades are going to have to be new wheels and a longer stem. The OEM is 60mm, my new roadie has 120mm, and it is definitely cramped.

I am taking recommendations on how you would do this to keep initial costs low, and be able to stage the whole thing so the wife doesn't freak on the outlay.

Questions would be:
Stem: new quill or threaded to threadless conversion?
Barcon shifters? Indexing?
Cassette v. freewheel hub? What wheels?
Basic commuter racks/panniers?baskets?
Lights?
Tires?
Rear deraillier? New chain?

At this point, I am planning on commuting to my summer job (I'm a teacher) on my Trek 800 MTB, which is heavy slow and not really comfortable. The 800 is not getting any upgrades except maybe a rack, period. I just don't like it.

Thanks for the help.