Not too much to add to the bike conversation that hasn't been said, but my $0.02. If you are looking for a more nejotyable ride, definitely invest in some slick tires (unless your commute involves off-road sections). You gain a little bit of speed, but it feels much better. Easily the best upgrade you can make to your current ride to maximize enjoyment.

You can also buy a longer seatpost. This works great if you only need a tiny bit more than your current seatpost can give. Granted, your current bike is probably too small, but if you don't want to buy a new one, getting a seatpost extension will help your comfort level. I added a longer seatpost to my Mountain bike to get another 1/2" of leg extension & it worked great. total cost was $17.

I agree that a solid fork would increase your riding efficiency & make a difference in your speed, but it would definitely cost a few $. If you plan to keep this bike, it might be worth it. If you are looking to upgrade in the near term, it's probably not worth it. If you have a lockout on the shock, definitely use that. If you have a bike co-op in your area, you may be able to get a new fork relativley inexpensively.

As to your question about panniers/backapcks, there are lots of people here who use panniers & love them. I am definitely in the backpack camp, but I do strap mine to the rear rack when I ride & then just throw it on my back when I get to work. This solution gives the almost all of the benefits of a pannier, with almost none of the drawbacks. YMMV.