Unlike many others posting here I would not be making wholesale changes for Sydney. It was and is the poorest performance by an Australian team I have ever seen, however, some of these guys deserve more respect that what has been given to them.
I would first seriously look at sacking the selectors, who seem to have a goal to destroy as many careers as possible this Ashes series. Hauritz, then Doherty, now possibly Hughes, and then possibly Smith. Maybe even Beer. If we don't have experienced cricketers performing well in a position they are looking for (eg spinner), then either stick with the one doing the ok job (Hauritz) or pick a young bloke and stick with them for a whole series so they can relax and we can see what they've got. Guys that are 25+ and have never performed exeptionally at domestic level aren't going to be the answer at International level.
Don't put pressure on guys that haven't been performing at domestic level (Hughes) by bringing them in halfway through a series, and don't bat a guy in the top order that doesn't have the technique to do so (Smith).
The next guy who should have his head on the chopping board is Nielson.
As far as the cattle are concerned I would play the following in Sydney:
1. Hughes
2. Hussey
3. Ponting
4. Clarke
5. Watson
6. Haddin
7. Smith (I would have had White in instead, but don't want to destroy another career just yet)
8. Hauritz
9. Johnson
10. Siddle
11. Copeland
Copeland is my only smokey for this test. I agree with Noddy that Watson is not an opener, so have adjusted the batting lineu pto suit
For the next series, well I think that Ponting should go. It is clearly time. I would stick with Hughes at the moment, but his technique needs some serious work. Strauss and Cook have completely showed our openers up in their ability to look solid and leave a lot of balls. The only guy in the Australian team that does this at the moment is Hussey. To that end I would also be introducing a new rule that no Australian test cricketers can play 20-20 cricket. Make the teams completely seperate, with the only crossover in ODIs.
Next series I'd be inclined to bring in both Mitchell and Shaun Marsh to the squad along with Khawaja. Add Cameron White as well, who is the best captain in Australian cricket. Smith would be in there, but competing against Hauritz for the spin spot until his batting technique improves.