I've shot in similarly tight situations on 35mm, using nothing wider than a 28mm lens (when I worked for my college newspaper, 28mm was the widest lens available to me). 18mm may be far too wide for people shots.

As far as the lighting goes, if on-camera flash is your only option, diffusion on the Sunpak 120J with the reflector is a good bet, as is a bracket. I've also used a Stofen-style diffuser on Nikon SB-16 or Vivitar 283 flashes. I used to have a Sunpak 120J... now I have a floodlight reflector that I spray-painted powder-coated silver, and cut a rectangular hole in for the SB-16. This is fairly soft.

Is there any chance of getting into the place in advance and doing some tests, especially if you can at least borrow a flash meter?