Frame size is very personal. It has much to to do with your inside leg, back length, arm length, what position you like to sit in whilst riding, how much wind your ears catch etc. etc. A decent bike shop will let you test ride any bikes you might want to buy. I agree with dougie that EBC are a good source of cheap bikes. Their touring ones look excellent. They make a lot of no-nonsense stuff used by couriers etc.

Ortlieb dry bags do seem to be the panniers of choice for most tourers. Have some of their drybags for canoeing and motorcycling. Very tough and well made. A bike in that price range should have Shimano gears, which are pretty good even in their cheapest form. A good upgrade you might like to make is to go for 'cartridge' type brake blocks (assuming your bike has rim brakes). These make the whole process of replacing blocks much easier and the little replacement pads weigh sod all, so you can carry lots.

If you are trying to save money a good way to think about upgrades is 'contact points'. i.e. where you meet the bike and the bike meets the ground. The most useful upgrades you can make are a good saddle, comfy grips, good shorts and gloves and good tyres. From a lightness point of view your wheels are the best place to lose weight as 'rotating mass' is far more useful to get rid of than static mass. The easiest way to do this is buy kevlar beaded tyres. Another advantage of these is that spares can be folded away.

Damn, all this bike chat has got me hankering for pedal power again!

Matt

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*Disclaimer* - I am not saying my bike is better than your bike. I am not saying my way is better than your way. I am not mocking your religion/politics/other belief system. When reading my post imagine me sitting behind a frothing pint of ale, smiling and offering you a bag of peanuts. This is the sentiment in which my post is made. Please accept it as such!