Laura,
As this is your first trip to Europe, my first suggestion would be to have a look at Europe Through The Back Door. That will answer a lot of your questions, including packing, Itinerary planning and especially rail skills.
For suggestions on "inexpensive places to stay" in Rome and Venice, check your local Bookstores or Libary to see if you can find a copy of the Italy 2010 Guidebook. You might want to buy a copy to pack along, or just copy the information if you can find one in a Library. The Guidebooks have lots of information on Hotels in various parts of both cities and in different price ranges, including Website listings. You should be able to find something that fits your budget and tastes.
Regarding walking shoes, I'd be more concerned with comfort than with "trendy". Rick suggests taking a well broken-in pair of walking shoes. Some of the group here prefer to travel with two (or more) pairs of shoes while others (including myself) prefer one pair only.
"What to carry my stuff in during the day" - there are lots of different opinions on that. Some prefer Daypacks, some like Messenger Bags or other small bags. Have a look at the Travel Store here or check www.magellans.com to get some ideas on bags that might work for you. I'd stay away from "Waist Packs", but that's a personal choice.
Happy travels!