I guess I am planning to do something like you suggest, using the earlier type footpeg rubbers (round, and neater looking than the stock, square type on my -77), but I haven't got around to finishing it yet. I plan on having the footpeg centres between the mounting studs, which gives me the stance I want, when using a LSL Superbike bar with 50 mm (2") rise. (I am around 5'9")
As I alrady have a custom made spoked disc brake rear wheel, I will use a brake pedal from an Aprilia RS125 (nice, lightweight alloy) and a Brembo master cylinder from a Ducati. Obviously this will not look period, but hopefully result in a strong and predictable rear brake.
However, while enjoying myself immensely at the (Philip) Island Classic Roadraces in January 2011, I saw an XS with rearsets made from the stock pegs. Basically the pegs were slightly forward and below the lower of the 2 mounting studs, which gives a fairly neutral riding position. This bike looked like a mostly stock daily rider, not super clean, but in good order.
The gear lever and linkage looked pretty similar to something from an early 70's Yamaha LS2 100 cc twin, or RS100 single, very basic. A simple bracket for the pivot bolt was welded just above the left footpeg.
The stock (drum) rear brake pedal was used, and a new pivot bushing welded further aft on the frame, so the pedal to peg distance ended up around the same as stock. This may cause increased brake "jitter" when the rear suspension is moving, but on the other hand will mainain the leverage ratio. Ideally a shortened pedal, in combination with a brake arm shortened to the same proportion, then a raised pivot point that keeps the fwd end of the brake rod in its stock position would be best.
This setup can definitely be made to look very close to factory, which no alloy rearsets will. The one thing I do not know anything about, is kickstarter clearance.
I do have some pics of this setup from Phillip Island, but unfortunately I left my camera at home, and will not be home again before the 14th or therabouts. Feel free to PM me if you want these pics! And maybe the Aussie owner or one of his buddies are on this forum !