I have a similar setup; my MLT has 1.75 gallons of dead space. I correct the mash water volume by adding the correct grist to water ratio amount plus the 1.75 gallons to fill the dead space. Then I subtract the 1.75 gallons from the sparge water in order to keep the wort collection amount the...
This element sizing calculator link has been posted in a few different discussions. It will give you an idea of element sizing based on your batch size.
http://gnipsel.com/beer/software/calculators/electric-heat.xls