Hi Bob!
My name is Brian. I'm a KLR owner ( 2011 ) from Phoenix Arizona..
I'm going though the same thing you are right now. Selecting & mounting panniers on my bike.
As for the racks. You'll have to search around.. there must be a dozen different makers. I bought mine used from a local guy.. Not even sure who makes them. They attach on 3 points and are very sold. In any case, you shouldn't have to pay more than about $80- $150 for them..
For the cases. I decided to go plastic.. I do a fair amount of dirt riding and aluminum panniers just bend & crush.. and when they do, all you can do is try to beat them back into shape.. If I break the plastic ones.. I can return them under warranty! 
I went with a company called seahorse cases.. Seahorse Cases - Waterproof - Protective - Made in USA
They are about 1/2 the cost of Pelican cases.. and still have a unconditional lifetime warranty.. I bought 2 of the SE-720 cases and 1 SE 620 ( but now I wish I had just bought 3 720's ). The 720's hold about 25L of gear.. The company is in Utah. So shipping should be pretty quick to SoCal and should cost you about $65 each.. shipped!
I put a rack on top of the stock rear rack. Products | AlumiRacks $100, but gave me a good platform to put a hard case on top of. and plenty of attachment points to tie other stuff to. Even came up with a quick release setup for my 640 case. ( I keep my camera stuff in there.. sooo ). If you get this one. Make a trip down to your local ACE hardware dealer. You'll need at least 4 more ( & longer ) bolts than they supply with it. ( if you order it with the free spacer kit ). The bolts you will need are like the 2 bolts that go though the middle of the stock rack down into the frame.
Another way you can go is with soft saddle bags. Found these on a KLR forum and the people who bought them seem to like them a lot.. Versa-Packs ™ Insulated Saddle Bag with Daypack - Model VP-175 - Clearance Item | petandhorse.com Only $23 bucks!
Hope this helps you out..!
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