Honestly - I thought the same at first but I've regularly ridden with Katie and looked back to see how effective the lights are. The front light isn't obscured by the bag at all from any distance beyond a couple of metres (ie any distance at which it's going to make a difference) and the height isn't a problem at all.
Even the standard halogen bulb is more than bright enough to be seen by. Brighter lights don't really help much in London - generally people riding with hugely overspecced off road lights are no more visible than those with much more modest kit - it's still only light from a single point. What they do tend to do is dazzle other road users (including cyclists) which kills any night vision you have..
Next step is to increase the visible area and that's better done with reflectives than anything else.