In terms of performance, a K&N is the way to go, but if you're looking for reliability, the regular old paper filters are better for your engine. They're a much finer filter medium and catch a lot more dirt than a K&N will. Also the price difference is negligible, a paper filter is usually around 15-20, while a K&N is closer to $50 or $60 plus the future $30 or so for a recharge kit to clean and re-oil it.

When it comes to oil changes however you've definitely got the right idea, cheaper with better oil and better filters. Also I do know that K&N uses a finer mesh in their oil filters than most compettitiors, so its worth it there.