I've built a few wood privacy fences, but never one like what you are going to do. In my experience, getting the posts set in the exact spot is really the hardest part. Measure, measure and measure again. If you are off one inch, you will have issues with the next one over and getting the rails to line up. If you ARE going to be off, it's much better to be too close then too far apart.
I have a 12 inch auger and find it to be just barely large enough for fence posts. If I was to buy another auger, I'd go bigger. It's allot faster and easier to put dirt back in the hole, then it is to adjust the hole with your clamshells.
Speaking of clamshell diggers. Get the best that you can afford. This is something that you will rely on and with as much fence to install as you are going to do, quality will make a huge difference. Mine are all metal and heavy enough that they dig on there own. I just got to line them up and they will take out dirt on the way down. Of course, it's more work to lift out a heavier set of clamshells, but that's a trade off I'll gladly take. I have a lightweight pair that never get used because they are so hard to dig with.
One trick that I've just discovered is to start the hole with a shovel. Just a small depression makes a huge difference in keeping the auger where you want it. Kind of like drilling metal with a center punch hammered into the spot you want to drill.
Get a fence post level that goes on two sides of the post. Also get some extra, small bungee cords to replace the rubber band that comes with it. They break after a few weeks use.
Don't worry about post height when setting the posts. It's easy to come back and cut them off after you have your rails up. If you cut them off too soon, or set the posts too deep, it's too late to adjust your rails when you install them.
I don't know if gravel, a large rock or a disk at the bottom of the hole does anything or not. I've repaired quite a few rotten out fence posts and in every case, they rot out at ground level. I've only seen very minimal damage to the ends of a post, and wouldn't worry about them at all. The key to a long lasting wood fence is to keep water away from the post at ground level. I put a crown on the dirt or cement when I put in a new post. The bigger it is, the better. You have to keep water away from your posts. Nothing else matters, just be sure that water will never puddle around them.
Good luck,
Eddie