If possible, I would see if you could take the damsels back to the LFS
. If you keep them in the tank, they tend to get very territorial (especially since they were the first fish in there). As far as cycling goes, you are better off using live rock. If you want to set up a reef, you are going to need that anyway. Assuming you use enough (1.5 - 2 pounds per gallon), it will handle you biological filtration too.
If you are planning on keeping corals, the flame angel is probably not a good choice--they tend to eat corals. With dwarf angels, you can sometimes get lucky and have one that doesn't, but you may want to consider a different choice there.
For a list of corals, you can keep anything you're interested in. The question would be whether you want to go with very high light corals or more moderate lighting. Either way, you can have a very colorful tank. If money is not much of an issue, you may want to look into metal halide fixtures. That sort of lighting would allow you to keep pretty much any corals.