I use manual - simply because I want to be in control, especially when it's my clients money. When manual, it makes more sense to control what times, or if the advert appears over a whole day or until the money runs out. If money is not an option, go with automatic.
We (web users) click impulsively and so sometimes being position 1 is not best but why would you want to be anything but position 1 (and so is the world of SEO). In fact, I've seen many results which shows position 3 - 5 is better (in regards to ROI).
I have done AdWords for 6 years and it's very complicated. What ever you decide, monitor it closely so you don't get any nasty shocks! :)
As per "using the lowest price per bid" - this is normal. It's like the Ebay bidding system (if you use it), where if your max bid for a key term is $50 and mine for the same term is $40, you'll only pay $41 regardless of automatic or manual bidding.
Since you're asking about costs, be aware what your daily cost is (just to go into this more). What ever your daily costs is set as is not gaurenteed. Google actually calculates the max you can spend a month based upon your daily limit. This means on some days you can spend over your daily budget, other days you can't reach it.