I know it is best to pack light and not make my backpack too big. I read on the ryanair website that the size of the carryon bag has to be 55x40x20cm. Is that the largest bag anyone has brought on the plane? or is standard size hiking backpack allowed?
Knowing Ryan, if a "standard size hiking backpack" (which is rather ambiguous) doesn't fit their dimensions it's going to be a deal-breaker.
Not if it's bigger than 55x40x20cm :-)
They have sizing cages at check-in that your bag must fit in (including wheels, handles etc.) if it doesn't you're off to customer service to pay to check it. You may get lucky and the agent won't notice or ask you to size the bag but it's luck of the draw.
And if they make you check the bag, it costs more than if you had paid for a checked bag when you bought your ticket.
Being based in the UK, I use Ryanair quite frequently and while I think they're a good airline (cheap, usually on time and with a good safety record) the only thing I will say is- they mean what they say about luggage!