hi - i'm new on this board, but not to fish/planted tanks. just thought i'd throw in a few comments
i use sand in my aquarium. however, it's not the standard aquarium sand that you buy at pet stores (way too expensive for me). i got a 50 lb bag of play sand at home depot (or lowe's, i forget which), and i rinsed that before putting it in. i know some people use pool filter sand, but i don't know what that is (i've never seen it). i personally like the look/maintenance of sand better than gravel. i have had tanks where it was mixed with gravel, and there were no problems, it mostly depends on the look you're going for.
i used to have a dwarf puffer with the sand substrate, and it was fine. i think most fish will be fine. i can't think of any that would not be fine, but i also don't know everything about every fish :P
i'm not sure what the hanging plants are, but
www.plantgeek.net would be a good source

CO2 is not an absolute need in a planted tank. i have a moderately heavily planted tank, and i do not use CO2 (too expensive to go pressurized, and too complicated to use diy). instead, i use flourish excel, which is an alternate carbon source for plants. i dose at half dose because i had problems dosing at full dose. i also don't do the waterchange dose. however, depending on how many plants you have, you might want to consider fertilizers. i have things like water sprite, hygros, java fern, java moss, apons, dwarf hairgrass, and lilies (that i can remember right now) and none of those require complex substrate or insane light (i have neither).
as for the algae eaters, i would recommend some otos. i just got some recently, and they quickly made all the algae in my tank disappear. there wasn't a lot to begin with, but they did get my tank clean. if you don't have enough algae, you'll have to supplement their diets with some algae discs. i think they are also considered a "group" fish, so you might want to get more than 1. i'm not sure how the puffers will tolerate the otos tho. some people have had luck, and some have not. i've never tried. but having said that, that goes for pretty much any fish that is with a puffer. more info on those can be found at
www.dwarfpuffers.com (can you tell i check too many forums? :P)
wow - sorry for such a long response. i just wanted to be sure i covered most your questions

if you have any more, i'm sure other people on this forum or i can respond back
