That is exactly what I would do. Convert it without cutting, enjoy it, and if a future owner wants to spend the extra $ to make it dead standard there's no harm done.I like your viewpoint. It is a "U" model, which means utility and it has 4 wheel hydraulic brakes already, so the main focus will be the drivetrain. He's thinking a Toyota or Nissan 4 banger would work and with electronic ignition, and manual 4 or 5 spd, it would be a fun wagon, and he would be keeping Peugeot history alive, which I know appeals to him. He won't cut the firewall and will keep the stock motor in case someone in the future has an itch to put it back to bone stock.
You could fit a remote booster to give the standard drums a bit more oomph.
I think the ones they make for hot rods are as small as 6" in diameter and you can hide them quite easily.