Hi, you're getting a good start from what I'm reading! Good job! Just got off work here and saw you came back on...
I put some of my responses into your quoted text, so I could keep track:
Sounds like a great plan! Yeah, you want to play with it and see just what it will do for you. If any issues come up you'll have time to correct it. You can always finish the chix in the "O" (oven), if everything just starts going south on you and you can't seem to get it to recover in time.
You'll have to experiment with the distance of the smoke wood holder from the fire. This will be sort of a tuning process. The closer the smoke wood is to the fire the more intense the smoke will be...it will start out somewhat heavy and white in color, but should tone down after 5-10 minutes...if the smokes comes on really heavy and very soon after adding the smoke wood to the holder, you are probably getting too much heat to the smoke wood.
The perfect smoke for best flavor is when you can smell smoke coming out the exhaust vent, or it stings your eyes, but you either can't see any smoke, or very little at all. Oh, a couple of tricks to slow down the smoke is to put it in a foil pouch closed up tightly...the smoke will wisp out ever so slowly...done that alot myself with really small chips. Also, you can use a burned out tin can to put the smoke wood into, then place in your pan...this slows it down to a more moderate degree, then, covering the can with foil or the cut out lid slows it down more. Chunk smoke wood (2-3" thick) burns slower, that's what I like to use.
If you have alot of smoke for a long period of time, you will need to raise the smoke wood higher from the burner so the pan will be a bit cooler. One trick which you will learn over time is this: when smoking at higher or lower temperatures, or when the weather conditions are different (colder, more wind) requiring different burner heat output, this can change the smoke output as well. It's hit and miss until you learn how your individual smoker likes to cook to give the results you are looking for.
Don't get frustrated with the learning curve, as it happens to pretty much everyone with a new or modified smoker. We'll help you get through it, OK?
One advantage you will have is being able to raise/lower the pan's position in relatyion to the heat source...not an option with most vertical smokers unless mods are done to it...so that's a plus.
As for the water pan, it serves 2 purposes which you may be able to do without as you progress through a few smokes and see what works well. The water adds humidy to the cook chamber, which aids a small degree in keeping the meat more moist. It also acts as a thermal mass to keep the cooking temps more steady.
Now, with adding a cast iron smoke pan, you will be adding a second source of thermal mass, so the water could possibly be omitted. Alot of folks here do not use any water in their smokers, especially when a heavy load of meat is being cooked, as each piece of meat gives off some moisture to the cook chamber, thus helping to keep the humidity in an acceptable range.
I mostly do wet smokes myself, but have done dry smokes, and noticed very little difference in the finished product. So, it would be a personal preference issue in my mind. If you can hold acceptable chamber temps, without excessive spikes or drops, then the water would be an option for me, and in your case, would allow the addition of the second cooking grate. Well worth toying with it to possibly double your capacity.
Don't mean to get long winded here, just trying to give you as much info as I can so you can understand the process better. This will help you to be able to make faster adjustments with your smoker so you can start to really enjoy cooking on it.
Sounds like you're diving right into this with a good attitude...that will better your chances of success more than anything.
You'll pull it off...I can tell already!
And I do like to hear success stories, so the more I can help the better!