Touring Equipment

If you are only going to have a bag on top of the rack, couldn't you use a rucksack/messenger bag or something that you're likely to have anyway? I know they aren't waterproof, but packing stuff in carrier bags would solve this. Bungee strap the bag to the top and you're sorted.
Also means you can lock the bike somewhere and carry the bag away easily.

I use this for my commute (35 miles a day), and it works just fine. Would save some money.

I also read somewhere online about someone who had done lots of touring and they recommended using a backpack with the straps cut off (so they dont tangle in the wheel) instead of panniers. Don't have the link and can't remember what advantages they claimed but does anyone use this set up?

I use a messenger bag all the time (Archies Theo), for general riding, and it is 100% waterproof, full floating liner and what have you, and would be more than up to the job.
The thing is, I am thinking of doing 70-75miles a day over 10-14 days, in the summer/spring most likely, and having the weight off of my back, and not generating unecessary heat/sweat on my back seems like it would be worth £80ish.
As I am one of those weird people who generates a hell of a lot of body heat, I never have the heating on in my bedroom, hardly ever wear more than a t-shirt and jeans until the winter gets really fierce, and generally don't need much to keep me warm.
Plus the great thing about the Topeaks is they have some neat sliding mount bracket thing, which makes removing/carrying the bag with you (if you have to lock the bike) a doddle.