Clearance is tight enough that when I took my fenders off recently, I had enough trouble getting them back in place without any rubbing that I've left them off. I measured 50mm between the front canti posts and 40mm between the chainstays at the tire. For this particular bike, I think the best solution would be a 27" wheel, with a 130mm hub and cassette, and 27 x1 1/4" tires and fenders. After a bit of fiddling, the cantilevers still don't hit the 700c rim close enough to squarely for me to be content either, but they do the job.
For as much as others have had luck with the 27 to 700 conversion, I'll be a vote against it. Although, I do appreciate the 8-speed cassette upgrade.