The bigger you go, the more surface area that you will have on the stone and the more power you should have for removing material. For sharpening, you really want a fine stone and again, the more surface area that you have, the easier it will be to sharpen drill bits, or whatever you are sharpening.
One thing that I think seperates the junk from the decent grinders is the rest. The junk grinders tend to have thin rests that have large gaps between them and the grinding wheel. I like to have a rest that goes right up close to the wheel.
1hp is about right for most things. Less power will disapoint you.
Take a look at the Wilton. Ebay has them listed for $120.
For more money, you can get a much better grinder, but for this amount, you can get a good one that should do anything you need it to.
Eddie