Hey Jeff – I think that due to pellet smokers requiring much of the wood pellet for “fuel” leaving a smaller part for the “smoke” means that you want as much of the smoke to stay in the chamber for as long as possible. Just my opinion. I’ve not used charcoal pellets. Those I’ve spoken with who have used them weren’t extremely happy with the results. Regarding the water pan, I feel that pellet smokers don’t typically require water pans. However, you can surely use one and see how your results go.

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Pellet grills preheat quickly, so you can start cooking almost immediately, and the pellets are available in a number of woods, for different smoke flavors. The smoke has a subtle wood-fired flavor with less of the acrid flavor that comes from standard wood or charcoal. For the maximum smoke flavor, it’s best to cook at a temperature lower than 250 degrees, while higher temperatures cook faster with less smoke.
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