You'll notice more difference between a knobby 26" and a non-knobby 26" than you will the difference between a 26" and 700c of the same tread design/compound.

You can find racks that offer longer platforms that allow you to mount panniers further back. Downside to that is the further back from the axle the load goes, the more noticeable the handling will suffer. Also, the better quality panniers allow you to adjust the mounting hardware- as in slide fore/aft or rotate a bit to tilt the bag. You could just get a decent backpack or find one that works off the bike and just strap it down to the rack itself or use a basket or crate. Here's the solution I came up with: