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Tomcrofts89
700 x 38s should fit without mudguards. I found a similiar Peugeot in a ditch a few weeks ago with a bent dropout and seized BB, 38s fit ok.
You will have trouble finding a 650b singlespeed rim brake wheel and would need something custom built. There are cheap geared 650b wheels on ebay that could be run with a single speed conversion kit, but they are 135mm spaced where as the frames rear dropout spacing will be 126mm.