As someone who did this on a budget a year or so ago, I can say I'm pretty happy with my modestly priced Topeak Super Tourist DX rack (disk compatible, which I needed), and content with my relatively cheap Avenir panniers. They are not 100% waterproof, but they do okay in light rain. I use plastic bags for my cloths, though, as extra insurance. 1 year and 3000 commuting miles (or so) on them, and the bags look pretty much like new; I did, however, replace the cheap hooks with some higher quality ones. So far no rips, tears, splitting or loose seams, or any other problems. I don't overload them, but I do carry plenty. All this to say my $60 pair of panniers are doing the job admirably.

If I had it to do over again, I'd probably stick with the Topeak rack; it is stable, strong and completely functional for my use (so far I've had no need to load up more than 40-45 Lbs, and generally carry around 20-25?). I would, however, step up to some higher quality (Ortlieb or equivalent) panniers. Not that mine aren't doing the job, but I would prefer more waterproof and durable seeming. Specifically, in addition to better waterproofing, I think the plastic that forms the 'skeleton' of the panniers (secures the mounting hardware/gives them shape/holds them rigid against the rack) is too flexible, and this is where I expect to see failure, eventually. Depending on what shape they are in at that time, I could probably replace the plastic innards with some better material, but we'll see.

I would also say this: If I had to commute on my MTB more often, I'd have gone back to a backpack by now, as heel strike is more of an issue, and it seems to shake the fittings loose more often than not (the reason I bought the new hooks is that I had a hook shake loose 3 or 4 times when riding the MTB, and finally lost one). So make sure you get a rack/pannier setup that works on your bike. One of the issues with the MTB is that I have a cheap Performance rack that doesn't shift the panniers back as far (in addition to shorter chainstays, I think).