1 - would the SSD, i5, card reader, optical drive and peripherals be too much of a workload for the pico 160 xt? Even considering the two drives being powered externally....I will be using the integrated gpu also.
In my micromi build (check sig), im running a 2500K but with a dedicated GPU, 83W idle and 144W load, so since the GPU isnt getting any load, im assuming the difference is all the GPU, 60W, so your setup should load at the most around 85W, but im my case im not using the intel HD3000 at all (its turn off via bios), so maybe 100W tops.... so i concur with MikeC, i think even a 120W should be enough as long as you dont have that many hdds, or extra cards, but if you plan on adding then maybe something like Premium picoPSU-160-XT/16A 192W AC-DC
could be worth it.
2 - How much would heat be an issue in this build? The cooling options fan wise would appear to be very limited due to headspace. And would 8gb be significantly less heat than 16gb ram?
Mmmm hard to say, but i dont think it would make much of a difference, in all my builds even at load, it bearly gets warm. If you have a use for the 16gb go for it. There are some low voltage modules out there if you are worried about ram, lower voltage will mean less heat also, how significant.... hard to say, but regardless, something like Gskill Eco Series
is cheap and 1.35V.