Re verical dropouts
The problem with vertical dropouts is that you can't tension the chain by moving the wheel forward/backward in the dropout. You can still do the conversion if you add a chain tensioner. This is a tensioning gear that bolts onto the chain stay. It's adjustable and pushes downward on the chain to take up any slack. I think they cost about $10-15. I got one on ebay and it seems to work ok for my daughter. I think Harris Cyclery also sells them, http://sheldonbrown.com/harris/