Ok, squats are not a friendly exercise for individuals with long limbs! To answer you questions first, I would not use a smith machine, use free weights. And no, your back should not stay completely erect straight up and down, this would make the exercise pretty much impossible.
With your stance, I recommend going a little wider then shoulder width, no more then 6 inches wider. This will help an individual with long form from leaning too far forward. Also, someone with long legs also has a lot longer of a range of motion he/she needs to go through to execute the exercise then the average person. By widening your stance, you will decrease the range of motion you must travel through, which in this case is a good thing!
I would point your toes slightly outward, to 1 and 11 o'clock. This targets your quads the best and will help maintain your balance with your widened stance.
Your knees should follow the same direction that your toes and hips are pointing. If you find that they are traveling inward of your stance, or bowing outward, you are either going to heavy or need to really work on flexibility before executing the squat.
I recommend going to parallel with your quads, meaning in the lowest position of the exercise, your upper legs are parallel with the floor. Many say you must go lower then parallel if you really want to hit your quads and get a good stretch, however, with individuals with long limbs do this, 99% of the time it is impossible to maintain proper biomechanics of the exercise, so parallel will be just fine.
Your torso is naturally going to lean forward, since your butt is going to be sticking out and leaning back. If you stayed perfectly erect, you would fall over backwards, which would not feel good at all! So leaning forward is good. However, many individuals with long limbs lean too far forward due to their physiology. You need to focus as to not lean more then 45 degrees forward. Keep your back as straight as possible, with no rounding of the lower back. If you lean too forward, you will be placing far too much pressure on the vetabrae.
Someone mentioned earlier that many individuals place the bar way to high on their shoulders. That is not true. There are two positions you can use for the bar when squatting. If you place the bar high on your traps, this is known as bodybuilding style squats. If you place it lower on the shelf of your shoulder blades, this is more of a powerlifters squat. Neither is right or wrong. However, if you find that you have a hard time with forward lean, I would recommend holding the bar in the high position. For many, especially long limbed individuals, this helps them maintain a more upright posture.
Hope this helps!