first... 126mm... an old road, or old MTB, frame?... Leave it as a 7 speed. As to switching it to a freehub wheel and adding a newer MTB groupset to it,... yah, not going to recommend that choice... but it COULD happen, if you want to try. The first step would be getting the frame dropouts reset to 130mm.... the XTR Front Derailleur will probably not fit your old frame.... etc...
ps.. a 7 sp. Freehub will fit easily in the reset frame at 130mm as long as the O.L.D. of the hub axle is 130mm... a 8-9-10 Freehub MTB wheel will be 135mm... not an easy reset.... and there is more to resetting a frame than simply bending things apart... and proper alignment and angling is required... got a bike frame Gauge and a Dropout alignment gauge lying around? You'll need them. if you have a Road frame, most of the 700c or 27" wheels/hubs with freehub design will be 130mm...
Benefits of a Freehub wheel over a Freewheel wheel? The Bearing load is shifted to the outside several mm on the drive side which reduces leverage on the Axle, thereby reducing the chance of bending or breaking the axle under extreme loads..... the selection and quality of replacement parts is also increased with a Freehub.. and a freehub/cassette is a bit lighter too.
most Shimano Derailleurs/freewheels will work with most Suntour components... to a point. Suntour went under right about when 7 sp. freehubs and Index, Gear-by-gear shifting first showed up.. i have not personally seen ANY Suntour freehubs/cassettes.
second.. sell it once you get it working, or ride it for a while, THEN sell it
third... buy your son a nicer, newer, bike when he gets to riding height... but have him around as you make your project work... he will learn more than you can realize.
The XT/XTR Group is a good deal, looks to be in nice condition... but it won't be an easy conversion onto your old bike.
I recall handing wrenches to my dad when i was a toddler.. i could spot a 7/16" or 9/16" box-open before i could count. Flat or Phillips screwdrivers, the ratchet wrench, etc.The '53 Oldsmobile was a favorite "project" of his...he sold it and bought the "57 Olds Super Rocket 88 Hardtop with the bigger "98" engine, factory custom exhaust headers,and Tri-power carbs/manifold.. a Huge upgrade!
He mounted Curb Feelers first, then added an Aroogah Horn from a Model A Ford....