Yes to all of your questions
It is a partial, no you dont have to rehydrate, just dump the yeast on top of the beer once its at room temp
and 16qt will be fine if you plan on staying extract
what you can do is just boil like 3 gallons of water, add your extract and your hops, then cool that down and top up the fermenter with cold water to get your 5.5 gallons
If you plan on going all grain, you will need at least a 7 gallon pot just to be safe