Backpacks are really good for one thing: delaying the panniers that are sure to come.
I use very cheap rear panniers to be honest. One is a collapsible "box" style pannier that holds important items like clothing, cameras, on my way to work. It's somewhat waterproof, with fenders of course.
The other rear is an open pannier that cinches on the top with a buckle. I drop my work-backpack in this open pannier and it works great.
On the front I have two small Nashbar waterproof panniers that work GREAT! If it is going to rain then my important items from my rear panniers get stuffed in the empty waterproof panniers up front. These Nashbar front waterproof panniers are a great value.
Most important; on the top of the rear rack is a trunk bag, which holds all of my repair items, spare lenses, etc. All the things I need for flats etc stay out of my rear panniers.
I've been commuting for 20 years and this system is the one I've finally settled on. It's important for me to have room to "grow" on a daily basis. The below photos show my work-backpack dropped in the open pannier, and the front panniers have my softball gear and swim gear. The rear bag with the softball bat has been replaced with a collapsible "box" style pannier that I LOVE, which is water resistant.
I personally don't think you need expensive panniers for around-town riding. Long distance touring however, different story.
I would strongly recommend you put a low-rider Tubus Tara rack on your bike for front bags. Once I finally did this I don't know how I lived without.
Also not pictured...in the winter I carry a waterproof backpack cover from REI that I can quickly slap over one of my rear panniers if it's moist outside. This cover has it's own little bag which is clipped to the lid of one of the front panniers so it's quick to take out.