Get a good wheelbuilder to rebuild the rear wheel. Updating to etrto 622 (the offical name for the modern size) involves too many additional issues. Let him see if the hub is still ok (I really hope it is), and if the rim is fine as well. A new etrto 630 (that is the proper name for 27 inch) rim can still be bought, and of better quality than the old ones. This problem is of course an example of the kind of issues you run into with older bikes. 126 mm hubs can still be had. Easily for thread on freewheels, the much better Shimano cassette hubs in this size are hard to get (but I already found one in less than two minutes), and I think the Suntour offerings are incompatible (not sure, but beware).
Willem
Willem