I have the same machine! I just use the Coats&Clark 40 wt. polyester on top with their bobbin thread on the bobbin. I've only used their white bobbin thread, but that's because I've only done embroidery on light backgrounds. I've been really pleased with the results, as I am not willing to spend a small fortune on thread.
I'm really impressed with the ease of digitizing from clip art, and the results I've gotten doing that. I know lots of people don't like Singer, but I hae been really happy with mine. (I've had it for almost 17 months, and have made a bunch of projects on it.)
As for color choice -- your favorite color is going to be the one used most! I keep the "staple" colors on hand -- primary and secondary colors, along with pink, peach, black, brown, gray, and white. I've found that if I need to get something done in a hurry, I have most of the colors I want for a small project that way. If I need shades or tones of a color, I buy those then.
Anyway, hope this helps!