Let me give you my experience with wooden barrels thus far. Keep in mind that this is only my experience and i'm not pretending to be an expert on the subject.
Regarding the barrel drying out- if you leave the barrel on its side you will have air leakage as the liquid is drawn down, due to the unwetted stave drying. If you place the barrel on end, you will not have leakage due to the stave remaining in contact witht the liquid. Capillary action will keep the staves hydrated even if you only have an inch or two of liquid remaining.
As far as re- hydrating dry barrels - i would recommend against using old, dry barrels if they can be avoided. If you need to use old and dry, fill the barrel to the bung, place the bung stop in the hole and let it sit for a few days. After a few days, flip the barrel to the other end and let it sit some more. I have re- hydrated barrels in one day, but the longer the better, especially if you're going to be filling them with beer. Sometimes a whack with a wooden mallet on a leaking stave will sure them up.
Once you have your vessel hydrated, you can sanitize with a sulfur wick. Be careful not to breath the smoke, it will choke you. Take a wire coat hanger and unravel it, place the wick on one end of the hanger and light it and place it in the barrel so that the wick is suspended approx. 2-3 inches off the bottom of the barrel. Do this outside, not in the garage or basement. After the wick is burnt completely, let it sit for 30-60 minutes and either seal with bung stop or fill.
I normally use once used bourbon barrels which still smell strongly of bourbon and are hydrated. I do nothing to these except fill them with beer. DO NOT USE A SULFUR WICK IN A BARREL THAT SMELLS STRONGLY OF SPIRITS, you will have a rocket in the form of a wooden barrel at best, or a large wooden bomb at worst!
As far as the best beer to use goes, I'd suggest hoppy and somewhat strong, with hoppy being more important. The problem with wood aged beer is that it is so smooth, and good, that if you use a high ABV you will be stumbling and mumbling before you know it.
I keep my barrel beer under 10psi of co2 utilizing a system which i designed for a standard d- system tap (Sankey). This allow me to keep oxidation to a minimum, and use my standard keg system, not to mention not needing to buy a beer engine. If anyone wants to see a video of this, please post a request and i'll see if i can post something on youtube.
All in all, wood aged beer is very tasty and very rewarding. When friends come over and see me tapping beer out of a 55 gallon wooden barrel, their eyes light up like Christmas trees, and they can't wait to try whatever is on tap.