most times you'll have to cut the fender for clearance. even if you get it all set up and think it's gonna clear, as soon as you fire it up the chain jumps around and rubs on it.
as far as sprocket to sprocket alignment, it's tricky, but it can be done.
sometimes it's as simple as adding a washer or two between the hub and the frame on the engine side, and other times you might need to actually "spread" the frame.
here's an article on that:
Bicycle Frame Spacing
i'm gonna copy and paste the last paragraph in that article, just for a CYA;
"This job is one that isn't for everybody, but it's not rocket science either. Many shops are reluctant to undertake this sort of operation, either because of fear of liability or because they want to sell you new bike. Although it seems fairly alarming to deliberately bend your frame, it is really not that cataclismic an operation, and can be very worthwhile if it allows you to keep riding an old friend, with the advantages of a modern drivetrain."