I'm not sure about threads to save on shoestring. I'm sure they're out there.
to try and answer your questions on going ultra shoestring...
Insurance - get a traveller insurance that is medical only especially if you want to save on cancellation and baggage insurance.
return and open jaw - I find that you don't really save any money especially if you're flying with discount budget airlines. The cost is built per flight so it doesn't matter if you're flying back or open jawing with the same company. If you're flying with a major carrier, its worth flying into one location and flying out of another so you don't have to backtrack or create a circular trip that leads you back to where you started.
tips - if you're really that cheap about this, don't eat at restaurants. However, you will confine yourself to whats called self-catering where you hit up the local grocery stores and build your own meals and carry that around. France - hit up local bakeries, you can get fresh bread and pastries which will suffice if you're on an ultra-budget. Italy - get gelato to carry-away, buy pizza and foccacchia to go and sit on the steps of a museum or sight to eat your lunch.
As for souvenirs - thats up to you. I stuck to buying postcards. Not necessarily because I was cheap, but because I don't end up with a backpack full of tacky crap that collects dust on my shelves at home.
as for use of luggage rooms at r ailway stations - you can definitely do that. I never did because they did cost a few euros. Plus, usually your hostel will let you check out and leave your bags there for the day (or even a couple days if you're doing an overnight trip somewhere else and you have to check out). Plus, leaving your bag at the hostel allows you to use their guest bathroom again to freshen up before heading out on the night train.
night trains - thats up to you to check out with european train sites (and look up their schedules). The only crappy thing about night trains, is that sometimes they dump you off at your next destination really early. Sometimes 6am. Then you're stuck with your baggage and wandering around areas which may be sketchy when no one's around. Check-in at your hostel for the next day won't be available sometimes until 2-3pm in the afternoon and you feel and look grungy from the previous night train. If you can leave your bags with your hostel thats great, but wandering around the city for 3-4 hours until the stores finally open isn't so fun sometimes.
as for drinking water - buy your water from a grocery store rather than a convenience stand on the street. If you're really that cheap, most european countries have water that is ok for drinking. It may not taste the greatest, but you're not going to die from it.
as for peeing - I tried to avoid paying for bathrooms, but its inevitable (even at shopping malls, train stations... places you would think are free). You're always going to have to pay between 25-70 euro cents to use the bathroom. Make sure you keep change handy just for that occasion.
One thing you shouldn't be cheap about is a good guide book. I personally recommend Lonely Planet (for your adventure, Lonely Planet Europe on a Shoestring) but I think Rough Guide will do along with a few other brands. Going with a cheap guidebook is horrible because they don't tell you which bus routes to take nor do they have good detailed maps.
If you're really concerned about the food situation - I would recommend bringing dried packaged, manufacture-sealed food from where you live. Things like dried fruit, nuts, granola bars, etc will help stop the hunger when travelling if you don't want to pay ridiculous prices for food.
hope this helps.
p.s. if you're shopping for fresh fruit or vegetables in europe, don't touch/handle/rummage through the fruit. Its a serious faux pas and you get in trouble (but whereas this is perfectly legit and reasonable to do in Canada). Look around for plastic gloves to put on before handling fruit, or if you're stopping at a streetstand, point out what you want and get the vendor to do it for you.
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