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@hugo7
I think what Ed is saying is that your friend should have asked you to keep the gears.
That way instead of having a comfortable low maintenance single speed for pootling around town, he would have an old road bike with crappy old band-on friction shifters that he'd just leave in the same gear anyway.
I would put some proper 'gaurds on as that won't do a great deal and there seems to be plenty of space for them.
In terms of a wheelset how cheap do you need?
KinLin ADHN = £30
On-One/similar Track hubs = c.£60
ACI Spokes from cyclebasket = c. £20
Just over £100 for a decent wheelset.