Hi,
If your shots are at the base ISO, then you can probably go up to about 11x14 with the LX5. It depends on your standards. I have a 20x24 pic from a similar PS camera (S90), but that particular photo does not demand high resolution. If your shots are well above the base ISO, ISO400 perhaps, then maybe stick with around 8x10. Above ISO400 I probably wouldn't bother, or go with about 5x7 if you must.
However, if the basic file quality is good (low ISO), then you can theoretically make even very large prints like 24x36. The print will be rather soft if you look at it closely, but usually you view prints of this size from a distance so it evens out.
Use jpegs, it's fine.
I use an online pro-quality photo printing service, specifically Adoramapix.com in the U.S. The quality is very high, and the price is reasonable. Look for something in the U.K. as shipping for big prints can add up.
Making prints is not expensive. A 12x18 costs about $5.50 and an 8x10 costs about $1.25. A huge 20x30 is $18.00. Make a few and see how they look, you can always tweak it and order more.
Remember that the dimensions of the print will probably not match the aspect ratio of your picture. You will have to either crop the picture or crop the print, literally cutting off the blank bits, or at least covering them with the frame mat. If you crop the print, you might need a custom cut mat. I think the LX5 has a 4:3 ratio, so you might look at sizes like 9x12 that are in this ratio. I usually crop the picture in Aperture, and render a jpeg of the correct dimensions. If you are using a mat, you probably also want a 1/4" blank border around the edges.
Be sure to buy a frame as well. A frame in a standardized size is not expensive -- $30-$60 for a 12x18, maybe $15 for an 8x10.
By the way, you can get printing on BW paper these days, which might be good for your BW shots.
