the derailleur limits may need to be adjusted, or the hanger might be bent, or you may have a rusty cable preventing the derailleur from moving across it's full range, or the derailleur itself may be jacked. there are two screws usually near where the cable joins the derailleur, one adjusts the inboard limit and one adjusts the outboard limit. the outboard limit screw should be set such that the derailleur is aligned exactly with the smallest cog (when there is no cable tension present), or even a tiny bit (like, 1mm) further outboard. hard to say w/o more information/photos. to convert to single speed depends on the frame (horizontal dropouts? vertical?). given the age it's probably horizontal, so yes, you could get a new wheel, but you're going to need to consider the chainline (so the front and rear cogs need to be aligned and the chain should be parallel to the central axis of the frame), which may entail getting a new crank and or bottom bracket, or you could go real bootleg and just delete your derailleur, use your existing wheel, and set the chainlength to correspond to whichever gear gave you the proper chainline...