Yes, normally you will be asked for proof of Public Liability Insurance before you're allocated a pitch, especially if it's controlled by the council. You may get away without it if it's another body, but it is the norm to have this. You can get it fairly inexpensively with the market traders federation, but I have mine included with my professional insurance.
With regards to bags, don't bother with the cheap plastic ones, ironwork pokes through them, and we have too much plastic flying about anyway. Go for reuseable paper gift bags, fairly inexpensive when bought in bulk, and give the right impression. (quality!) Although I always ask customers if they have their own bags with them, they usually do.
Personally I think your prices are a little low, but only you know what you're time is worth and your overheads and profit etc. Don't undervalue yourself, handmade has a premium price attached to it and people do appreciate this! I'm not saying charge extortionately though, either!! Also if your footfall at the market are well-heeled, you can probably afford to charge more. I sell at a market each week that is quite mixed, have items in a range of prices brackets, I use it as my "shop front" and advertizing, and to me the commissions I get through it are worth more than the sales on the day itself.
have attached a pic of my stall, one day I'll get around to getting a banner painted for the front, it needs something like that as it's a bit plain I think!!
I like your display idea, I did something similar but then got tired of moving heavy lumps of wood around, so went for small blocks of wood and planks to create a tiered shelf, and boards to hang to display hooks and wall mounted stuff.
good luck!!