Originally Posted by
bautieri
+1 tx, the seat is definatly too low if he can touch the ground when seated.
Measure how far from the ground your pedal is when it's in the 6:00 position. Subtract an inch then raise your seat that much from where it is now. When your foot is on the pedal in the 6:00 your knee should almost be locked out. This seems very counter intuitive but trust us, your knees will thank you.
Regarding the frame, stand over the frame between the seat and handlebars with both feet flat on the ground while facing forward. Grab the stem with your left hand and the nose of your saddle with your right hand (still facing forward) and pick it up until it bumps your tender bits. You should have about 1.5 to 2 inches of clearance. If you have considerably more then the bike frame is too small. If you can't stand over it at all without the top tube being in your package then the bike is too big.
Bau
Bau's advice about wanting your legs almost fully extended at the bottom of your pedal stroke is spot on.
The advice about checking clearance to determine fit, not so much. That used to be the rule with traditional geometry road frames, but with any mountain frame, or with a newer compact road frame the rule does not hold. If you can get comfortable on it (after raising the seat), then it's the right size. You should have LOTS of clearance between the top tube and your tender bits (because it's a mountain ride)