Bikepacking - a viable alternative to racks & panniers

I'm going on a tour with a friend starting in Trieste and riding back to London over a period of 2 weeks. We intend on essentially riding between hostels so no camping. Would it be better to carry panniers or a saddle bags? Also what would you advise in terms of what to pack?
Also, padded undershorts or bib shorts?
Many thanks in advance.

Knicks or padded undershorts unless you're doing more riding than touristy stuff. Walking around in bibs is wrong.

This is all I carry..

http://danhendu.files.wordpress.com/2012/11/img_84452.jpg