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@Tenderloin
Single speed converter will be the cheapest way of converting the rear wheel, and you should be able to use the cranks on there with a little jiggery pokery. A fixed/free wheel will allow you to decide whether or not you want to ride fixed (in Brighton, hills = nice to be able to freewheel/but you're not a cool fixeh skidder) You can pick these up cheap, on here usually for less than £50 (for just a rear) steer clear of the cheap ones knocking around on ebay, the hubs are made of cheese, and you won't save any money than way. You should be able to stuff the wheel in there, steel frames can take a reasonable amount of persuassion, and 501 is nothing to worry about value wise so it should be fine! Keep all the parts you strip, scrub them, list them on ebay and you will probably have enough to do the whole thing for near enough nothing...
Depending how adventurous you want to get, you can put an axle bolt, through a front disc hub, and bolt a sprocket onto it, lace to a rim, and you have a fixed wheel...Velo solo bolt on cogs have a life time warrantee and are about £22.