The MTX Trunk Bag by Topeak has fold down panniers. We have them on both bikes. They clip into a rack made by the same folks. The bag is about $100 and the rack is about $40. The MTX has a large storage space in the main compartment. It has a smaller compartment on each side and this is where the panniers store. You can roll around in the daytime using the center compartment for items. When the time comes that you need the panniers, just open the side pockets, and voila.
We have an REI Halfdome 2+. It fits nicely in one pannier and the rain fly and footprint fit into the pannier on the other side. We fasten the poles and stakes to the bike frame using Velcro straps.
Because the bag slides off the rack, it can easily be removed and carried like a day pack for those times when your bike is locked up, you don't want to leave your gear, and the bike will be unattended. It even comes with a shoulder strap for that purpose. We are still impressed with our choice. The price is really reasonable if you figure you will not ever have to buy another one.