You should be fine putting a 700c wheel on there. The biggest problem tends to be with the brake calipers lining up, and since you are replacing them anyway, you will be golden.
I still think that it may be worth fixing for a commuter bike. Unless you do stuff like paint/powder-coat it, and add lots of snazzy details, an older bike like that is less desirable to thieves.
One of the reasons that I say fix it, is because of the frame. Steel frames from that era have such a smooth ride, tough-as-nails, and still relatively light. I think that it is worth it. I've thought about not fixing my 1987 Trek a few times (bad wreck a couple of years ago), but always end up fixing it. The only original parts on it now include the frame, rear hub, and the shifters and derailures. Everything else was replaced slowly over the years, and I really do enjoy riding it as a commuter. It is fast enough to take on at least keep up on group rides, and I can haul 50+ lbs of groceries in my panniers. Heaven.
I say fix it. Fix it with decent parts (newer double-walled rims are MUCH better than what you have now), but don't get too snazzy with add-ons.