I would really like one of those epic designs frame bag numbers, but they are a tad pricey for skint student types
My wife made a frame bag for me using the material from an old duffle bag (1000 denier cordura I think it was, but you could use a lighter fabric). They're not particularly difficult to make, if you have access to a sewing machine or you could even do it by hand. I don't find it gets in the way while riding, it's only 3" wide, but still carries quite a lot (tent, thermarest, stove, fuel, some clothes, food, headlamp etc).
I have a 7 litre compression dry bag which will take a sleeping bag and some clothes. I made some straps to lash it under the handlebars (you may need to lengthen you gear/ brakes cables to accommodate it, depending on the size). Standard rucksack strapping and buckles are pence from an outdoor shop, and it's surprising what you can do with the stuff.
All in all, it's pretty easy to do on the cheap I reckon.