Here's a link to several options to drilling holes. Your downtube isn't actually oversized but it is curved and sets further forward than a 'V' frame bike so some of these front motor mount ideas might be useful to you. http://motorbicycling.com/f6/oversiz...lved-6427.html
As for covering scratches, you might find an automotive touch up paint that will match that Schwinn. Dupli-Color is one manufacturer that has a good variety of colors to choose from. Most good auto parts stores carry it. Good luck.