Worthy? Technical bike confusion

Yesterday I went to the local bike shop to buy some clips for my new bike shoes. They had a "ladies night" sale a few weeks ago and I got new shoes. Since having the kids my feet have grown too large for my old bike shoes and I've been wearing my husband's. I decided to treat myself to shoes and ended up spending only $68 for shoes that were originally $120. They're very fancy for me- Louis Garneau, blue and silver, I like them. However, I don't really feel serious enough for them.

Anyway, I had my bike on the back of my car and I asked about switching out the gears from down tube shifters to the front handlebar (STI) shifters. (I know so little about bikes I don't even know what they're called) So I wheeled my Trek 420 into the shop and the two guys working back there got all excited about it. They both said they love that bike- and one seemed surprised that I'm thinking of changing the down tube shifting- and they would recommend I keep it and upgrade rather than buying a new bike down the road. Refreshing to hear from people that want to sell things that I should keep what I have rather than buy something new. However, there's a whole can of worms opened when thinking about upgrading my bike. To upgrade the shifters would run about $200. He said the front derailer will have to be replaced also. The recommends changing out my brakes in the future because I don't have quick release- another $70 or so. Then there's the shifting cassette. My bike has seven gears on the back and apparently that's out of date, and there's a larger chain ring for the front now that would give me more speed because there are more teeth on it. I could also get lighter wheels to decrease my rotational drag or something like that. It sounds like for $400 or so I could have a really nice bike. My question is- do I need a really nice bike. I'm nowhere near top fitness level and before I would even think about buying lighter bike parts I'd need to know that I'm as light as I'll get. What's a couple ounces with heavier wheels when I've got 10-15 pounds extra on me? I'm thinking of just upgrading the shifters and stopping there for now.

Yesterday I rode with a woman that's a pretty serious biker and I got my butt thoroughly kicked for 49 minutes. I think we averaged about 15mph, which was clearly nothing for her, but I was sucking wind big time. Right there was a big clue that three weeks from now, I'm going to get smoked on the bike. Oh well. I also went for a swim last night while the boys were in lessons. I had only 27 minutes to swim but I did get in a set of 4 x 100yd fast repeats. I was quite pleased that going on 2:00, I was able to do all 4 repeats under 1:40. The first was actually 1:28, but I was really pushing it. Unfortunately for me there aren't any walls to push off in open water swims, so I know those numbers don't mean much. An older gentleman in the lane next to mine complimented my form and I was flattered, but he was off on his next lap before I could ask if he had any pointers for me. Lunch time bike/swim/bike today and I'll get in either a run or ride tomorrow morning. Three weeks to go, gulp.