Lugs are actually frame joints, where tubes meet. I suspect Rhythm Thief means bosses; protruding bits for attaching brakes, racks and the like. Often referred to as 'braze ons' because they are, um, brazed (like welded) on to the frame.
Difficult to say about whether that MTB is suitable for conversion to a tourer. To be honest, it doesn't look like an MTB frame to me! Not that it really matters, you can tour on anything. Even if you don't have bosses for a rack, there are other ways of fixing one. Personally, I'd not switch the brakes to v-brakes unless there's a problem with them. Cantis, like all brakes, are fine so long as they're set up correctly.