Nigelnaturist
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On a different tack, I had a Gitane back in the 80's that had the gear levers on the head stock, nice idea, until you knocked the rear lever with your knee. usually went from 2nd to 5th result tarmac sandwich.
If the down tube shifters are friction, then you should be able to swap for a 7. Axel width should be 126mm, it's now 130mm for 8-11 speed systems
Your freewheel is worn, it shows up on the bottom photo, you may need to replace it, the only other thing to do is to have a play with the inner limit screw, it might need adjusting.
What's the inner limit screw?
If you look at your bottom photo there are two screws on the top of the changer, one is the outer limit screw and one is the inner limit screw, they limit how far across the freewheel the chain goes, on the inner limit screw if its too tight you wont get bottom gear, if its too loose your chain is likely to go into the spokes. Have a look at this video and see if it makes things clearer
View: http://vimeo.com/20216647
Hmmm?? Looking at the photo i can see the chain guide is quite loaded.
I don't suppose you have the chain "crossed", with it on the largest chainweel at the front
and largest at the rear?
I know my cheap and nasty 2010 coyote everglades road bike will throw its chain off the
largest front chainwheel if i go into gears 1/2/3 on the rear, where a road bike three times
the cost like my Trek isn't bothered at all by poor gear use.