I go with the 165mm cranks to avoid pedal strike. But many ride 170mm with no trouble.

I like the RD cranks and have them on three bikes with their matching bottom bracket and a nice chainline. RD2 is the same thing. If that 3mm difference is actually there and it bothers you, simply put the chainring on the inside of the spider arms.

If you can't make it up the hill, just walk it. I've tackled a few tough climbs where I've used the entire road to zigzag up and it probably would've been just as fast or faster to walk. I've done a 5km climb on the fixed side but flipped it to the free side to go back down. I hit 65km/hr going down that thing; I'm not about to try and scrub speed all the way down riding fixed.

If the old cups and spindle are in good shape, why not get new bearings and repack the bottom bracket? Then get a new ring and off you go.

Sugino does make a 42T as well as 44T, 46T, 48T, 50T and 52T.