I think the pot size should be based on how you are planning to brew. If you are going to use your stove top, then you probably only want to do partial boils (where you only boil around 3 gallons and add water to the cooled wort to achieve the full 5 gallons), and therefore a 4-5 gallon pot would work. If you are going to buy an outdoor burner, then go ahead a buy a bigger pot 7+ gallons so you can do full boils (boil the full batch).
Full boils require more equipment though. You are going to need a wort chiller, and maybe an aeration system in addition to the burner and larger pot.
So it just depends on how much money you want to spend. You can definitely make good beer from partial boil extract, but the best beer is all grain full boils. One thing is that once you get into brewing, you will always want to upgrade your equipment and add new things to improve your beer. I currently brew partial boils with extract and am saving up to do full boils and then all grain (just ordered my wort chiller).
As for the kit, I would probably pick something with a short fermentation time, like the nut brown ale (only takes 4 weeks from start to finish), since this is your first brew. When I started I couldn’t wait to try it.
You should leave as much yeast as you can in the primary and secondary. Keeps the beer clean. I am bad at this cause I want as much beer as possible.