Im in between the 17.5 and 19 so the smaller size should be pretty chuckable.
I found that too, went for the 17.5" in the end also. No regrets. If I'd wanted a more stretched out XC race position I could have probably got on with a 19" fine, but there's only about 15mm difference in top tube lengths, and the extra standover clearance is welcome, and they come with a 400mm post anyway.
Back in the late 90s I used to ride an old steel Kona and the Latitude reminded me of that.
Oddly enough, I never owned a steel Kona (must be one of very few who has been riding since the mid 90's that hasn't), but have ridden a couple briefly and there is definitely some merit in what you say. Similar kind of lively feeling and geometry, yet with a modern fork and disc brakes to get you into trouble even quicker!
Difference between 520 cromo and 853 is really only weight (though there are a few other detail changes in the frames now too I note). The older 853 frame, like mine, is essentially the same frame as the 520 but with 853 main tubes, which allows it to be a bit lighter (thinner wall profiles) for the same given overall strength. There's about 1/2 to 2/3 of a lb weight difference between the 520 and the 853 frames, so to be honest, it's quite an expensive way to save not very much weight! Though some argue that the thinner wall profiles allowed make for a "more lively" ride, but to be honest that's really only applicable to superlight road bike frames. The detail changes on the new 853 frame do look interesting, if not very aesthetically pleasing to my eye. That new headtube looks gopping on a Steel hardtail IMO, the assymetric chainstays will provide clearance for big tyres at the same time as a 2x10 setup, and there's 1/2 a degree off the head angle and 1/2 a degree on the seat angle to make it slightly more stable and stretched out (like an On One 456 really).
In your situation I'd go for the Altitude 10, haggle something off the price (join a local club, my LBS gives me 10-15% discount off anything just cos I'm a member of a local club!), then spend the remaining cash on a set of better tyres (those Mountain Kings are a bit poo to be honest), some better wheels (Hope Pro2 on Stans Crest would be my choice, or perhaps check out slightly cheaper offerings from Superstar, or even Shimano's own SLX wheelset), and change the grips to suit. The bars, stem and seatpost are all ok iirc, nothing fancy but decent shape and do the job, so I'd leave until bent/broken. Though of course saddles are a very personal affair, so you may want to change that.
Just a thought, but does your £1500 have to be spent on an entire bike? I ask cos for that money you could buy a frame yourself (I've seen a few 2nd hand 853 Genesis Altitudes come up on here, generally fetch about £200, mine might be for sale itself soon owing to purchasing the Ti version) and you could then spend the remaining money in the shop getting them to build it up with your choice of components. £1300 would get you some 120mm Reba's, nice wheels, a 10spd SLX setup and decent components I'm sure. Just a thought anyway, though is probably much easier just to buy the off the shelf bike then upgrade later on.