Sounds like its a similar sized and vintage lathe as mine, mine was hardly used and had a GE 1050 control.
At the time I did mine DSPMC etc were not available and the only StepDir to analogue converter available was the pixie and it was seemingly a hit or miss and availability was patchy at best.
In the end I went with AC servos, have a 10Nm on the Z and 7Nm on the X both connected 1:1
The spindle originally had a 17Hp induction motor which went through a gearbox and the gear changes were done via electromagnetic clutches, I have since picked up a 12Kw AC servo and use that on the spindle with good results, however I dont think I would go much smaller than that.
I thnk if I was in your position I would try and keep at least the original spindle motor and drive and possibly even the original axis motors and drives. There are Dugong Drives from CNCDrives,com which may handle your motors but they are step/dir so no use with the DSPMC as far as I know.
Originally my lathe had a 6 position turret on the rear and 4 position toolpost on the front, both were totally hydraulic. I have now swapped out the toolpost with another 6 pos turret which again was hydraulic but I have converted that to servo and it can now rotate both ways and doesnt have to clamp at each tool like the rear turret does.
Limit switches etc should be good quality and I would keep, also see if the DSPMC can do index homing as it will be much more accurate than homing to even a good quality switch.
I use a PLC on mine for controlling the turrets and coolant etc, it also handles the drives I/O and all the switches I have on my panel.
Try and keep as much of the I/O as you can at 24V as it will make noise a non issue.
Would like to see a pic or two of your lathe.
Hood