my two cents...
most pre-asssembled kits are put together with total crapola... you will probably end up replacing the filter and heater, and if you want live plants, the hood as well if you bought that 28 dollar wal-mart setup. it's best to invest in quality pieces rather than a "value kit".
heaters are definitely not a place to skimp.. a crappy one will either 1) boil your fish or 2)crack and create a different scary situation. i've used rena cal heaters, and they have been great. avoid marineland neptunes like the plague. a lot of them do this thing where they never turn off. it's not a happy happening.
as far as a filter, canister is the way to go if you've got the big bucks. if not, you'll most likely want a hang on back penguin or aquaclear. they are pretty comparable in price and gallons per hour rating. i prefer the penguin because it has the bio-wheel, which allows for the growth of more nitrifying bacteria, and in my experience, it is silent except for the low sound of the water running off it... which is a cool little zen-like addition to a room, kind of like a tabletop fountain. =)
equipment pricing can be marked up off the charts sometimes at your lfs (there is one near me that sometimes doubles retail prices!) so it's best to find what you want online first from a few different sources to know the neighborhood you should be spending.
if there is a petsmart near you, they are usually a good place to find equipment. some of their in-store prices can be jacked up a little bit... but they will match any price to their online store price if you've got a printout.
for example, my boyfriend needed a 100w heater for his 20gallon. he really wanted a rena toplite excel, but they were $32 in store. we looked it up on petsmart.com, their price was $18.50. i also saved about eight bucks on the filter i bought for my ten (penguin 100) that way. the savings really add up when you do the product research before you buy.
and as far as tank size, if you go smaller, you have to be more anal about water changes, but that is not enough to make me decide against a small tank, as long as it's cycled before you add fish.
my first tank was an eclipse 5gallon, and i was not thrilled with it because of the way the filter is set up inside the tank and the way the acrylic retained heat from the light i needed to run for my live plants, but it was a thriving, happy, mini-community. i have since upgraded to a ten, with nothing but success.