I've bolted my panniers to the drop out holes. Just be careful that the bolts are not too long and damage the chain or gear cluster. Most people tend to sweat a lot on their back, so a back pack/camelbak may cause problems so I would experiment first.

I'd change the MTB tyres to slicks as the knobbly tyres slip on bitumen but are good for gravel. With clothing it's up to you, but chafing can occur with some clothes. You can remedy this by buying athletes anti chafing lube. It's like a deodorant tube, and you roll it on where chafing is likely to occur.

With water I'd recommend at least 2 bottles. I haul 20 litres here in Oz. You can never have too much water. You have to allow extra water in case of punctures, breakdowns etc.