To answer your first questions about water pan I would say its personal preference. Personally I always use a water pan to keep as much moisture as possible in the cooking chamber. Especially on long cooks like butts and brisket because I don't foil them. this helps them stay moist.
2nd - I would get to know your cooker first. Put a nice season on it before the first cook and figure out the temp variances across the grate. How much the temp will move by playing with the damper on firebox and chimney. Also, look at how the water pan will affect temps depending on where is placed. Once you do this then you will get a feel as to where you can improve the cooker. Probably a gasket around the doors and a heat baffle on the inside. One thing I learned on here is it doesn't matter how nice your rig is if you cant master it. You have a basic setup. Master the pit and you will crank out some good BBQ.
3rd - I would always let your meat sit out at room temp for about an hour. This will help bring in the smoke flavor.
Baby Backs - Use the 2-2-1 method. Smoke for 2 hours between 225-250. then wrap them with whatever flavors you would like. Most people on here either use apple juice or a mix of brown sugar, honey, butter, and a few other spices. Put them back on for 2 more hours. Remove foil and let them firm up in the smoker for the final hour. I sauce mine the last 30 min. I would def. purchase Jeff's rub. you will hear a lot about it by searching the threads and trust me it is worth the money. I have 2 awards to prove it. Hope all of this helps. Happy Smoking