I would say H2H. Honestly, I've never done either but categories seems more interesting b/c then you're competing against someone else's score in each area.
30IP sounds about what people do, but it depends upon how many pitchers you use.
60 transactions also sounds good as does a weekly limit if you're going to do H2H.
I like the idea of using defense as a category since it is part of a player's overall value, but I haven't found a good, non-exploitable way to do it with trackable game stats. I've tried: Fielding %age, Put Outs + Assists (to try to get at zone rating and penalize DH's), Put Outs + Assists - 20 * Errors, and Fielding %age * (Put Outs + Assists). None of them really worked that well so I'd just suggest not trying.
As far as which site, people have their own preferences. Here's what I've heard:
* Yahoo: Definitely the favorite of the free sites. Has been around forever, has a drag-and-drop interface, and people like it. Downsides: It's not free if you want live scoring, the players who are promoted from the minors are added at random times, and their player info is mediocre.
* ESPN: From what I've heard, their new, free fantasy site is impressive. I can't say; I haven't checked it out. I do know, though, there was a big deal last year when ESPN had to reload rosters about a month into the season, wiping out any drops/adds/trades as well as all the stats accrued up until that point. I have tried them twice for fantasy football and wasn't impressed; we had problems drafting b/c the system kept freezing.
* Sportsline: First, don't use their free service. It sucks. It's very stripped-down and very limited with what you can do. Their pay service, however, is (I think) the best in the game. They have all the players you would ever think of adding already part of their database and the player pages have all the player's info back to single A. Also, and the best part for me, is that you can take any stat which they is tracked, and create formulas to make your own statistics. So, for example, my favorite stat in my league is a RELIEF stat. It's: Saves + Holds + Wins by a Reliever - Losses by a Reliever - Blown Saves. And you just can't do that at Yahoo or ESPN. Also Sportsline has a good league page that lets you post stories/polls/pictures/etc. I just like it. As far as cost, it's $130/yr (which is about the same as if everyone bought Yahoo StatTracker) and you can save $50 by creating a new league; ask me or others here for a referral.
0-3 to 4-3. Worst choke in the history of baseball. Enough said.