You will need a Ashtabula BB conversion kit, and from what I have heard, a cartridge BB - supposedly, they are less fiddly to install in the conversion cups then a traditional cup-and-spindle BB.

The BB spindle length will be determined by the crankset you are mounting, and the amount of offset you need from the chainstay (don't ask me how to determine length - I just keep a boxload of spindles on hand and swap when necessary).

The wheel swap should be painless (I assume you meant Rigida aluminum rims - I've never seen a steel rim with eyelets before) - most you might need to do is swap the freewheel if the chain on the Varsity skips on the Peugeot's freewheel. I would stick with the centerpull though - should perform adequately, if set up right.

-Kurt