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Chain snags on rear-wheel

Long story short, I bought a vintage bicycle and am fixing it up.

So far so good, but after adjusting the rear-derailer to take full advantage of the fifth sprocket I find that the chain will get caught on the frame and freeze both the chain and the pedals.

Thankfully, I managed to free it up without destroying anything. I also adjusted the screws on the derailer to prevent shifting past fourth.

Not that I have a problem with an eight-speed road bike, the gears that work do so well enough for me, not to mention the life of my drive-train is greater than a modern store-bought road bike. But I was wondering if anyone has experienced this kind of problem before.

I want to adjust the frame so that I can use my highest gear without problem, but at the same time I am timid about loosening anything holding the rear-axle to the frame.

Any ideas?
The only thing I can think of is are you using just one chain ring in the front for all five gears? Take a look at this and let me know? http://bikeride.com/gear-shifting/
Good maintenance to your Bike, can make it like the wheels are, true and smooth!
I'm not quite sure of the problem but I assume the chain snags the "seat stay" ??
If so I would think either the frame isn't true or the sprocket is too near the stay.
Is the tyre in the middle of the chainstays or is the wheel twisted in?
It may require the hub centering, by moving a spacer (washer) over from the left side to the right on the hub axle.
Ride hard or ride home alone!
To clarify, regardless of what chainring I am on, if I shift into the highest sprocket the chain will get stuck on the frame and freeze the pedals.

The bike needs a lot of work before I will be satisfied with it, but re-centering the wheels sounds reasonable enough.

Say, do either of you know if one could adjust a frame to allow for a freewheel with more gears? I was thinking of upgrading to a seven-speed when I replace the chain but right now it is mostly hypothetical...

Thanks again!
Steel frames can be "cold set" to a larger width.
Alloy frames? I don't know about but would be dubious.
Carbon definitely not.

See:- http://www.sheldonbrown.com/frame-spacing.html
I have had a steel frame set by a professional frame builder which I would recommend if you want to do this.

If your frame is 126mm spacing then you only need to go up to 130mm for 7-10 speed gears.
Most frames will spring the 4mm required without a problem. Just makes it awkward to fit the wheel and you have to watch out for your fingers Sad.
Ride hard or ride home alone!

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