I can attempt to answer both questions.
A water pan acts as a heat sync, to help regulate temperature spikes, or say when you open your smoker and loose a bunch of heat it helps to get the heat back up quicker, it has also been said that it helps as a vehicle for the smoke....cooking with a UDS does not require a water pan because the temperature is well regulated, also you will be surprised how moist of a cooking environment the UDS is without a water pan. If you kept the cooking grate 24" above the bottom of the charcoal basket you shouldnt need a water pan. You will also be missing out on all of that extra flavor from the drippings hitting the charcoal and adding more smoke flavor to the meat. It is about as close as you can get to a good ol fashioned smoker pit as far as flavor goes.
The thermometer question, yes it is necessary to know the temp at the cooking grate level, the temperature within the smoker can vary greatly in different spots. Also the thermo that came with your smoker should be checked for accuracy with a calibrated thermometer they can be off as much as 50*, most everybody here preferrs a digital thermo for that job. When I run my UDS I have three thermos running, one for each grate, and on for the meat temp.
Good luck you two