Wow that is quite an undertaking, good luck with it. From my limited experience I would not have the guts to try something like that, I hope it works out and remember to post pics.

As far as shoulder padding as I understand it you are right, you need it so the jacket hangs properly.

I would suggest that you do some research before taking on the jacket, take a look at the stuff Howie Nicholsby is doing at 21 Century Kilts

http://www.21stcenturykilts.co.uk/funkintro.htm