It doesn't look like the fork has an eyelet for fenders, but while I was on the Schwinn site I noticed the 2009 Cutter, which is cheaper than the Madison and does look like it would work with fenders. I don't know about hub spacing.

The SE Draft is another bike which might work for what you're interested in. I've seen it at my local Performance store for $199.

Of course, both the Cutter and the Draft come with flat bars, so you'd have to do some part swapping to fulfill the San Jos8 dream, but that still probably puts you cheaper than the Madison.