Jason,
I've been in the same boat as you perse, though my "return" to cycling wasn't after such a long absence. Anyways, I racked my brain as you are earlier this year in building up a budget friendly 29er that I could make work for a variety of uses (endurance racing/riding, bikepacking, local group rides, commuting). I landed on the Surly Karate Monkey for all the same reasons you're looking at it for, versatility and price.
I think the Karate Monkey (KM) is a safe and smart frame to get rolling on, it really is a chameleon. The geometry is nice, not a dull ride, has some "snap" in the steering assuming you have it built up and sized to fit you well. I'm 6' with a 34" inseam and long arms, so I went with a size Large frame, which gives me room to adjust reach with a shorter stem or different bar sweep.
Some thoughts after several months riding the KM:
Shorter chainstays on the frame are nice, let's you get the wheel up a little easier for technical riding (I also have a 80mm/0degree rise stem which helps). This may not be as important if what you're looking for is a big mileage cruiser and offroad tourer, but I like the way the KM rides on switchbacks and flowy singletrack for shorter weekly rides.
The build is simple and not flashy, basic straight tubing like most steel frames, and the frame definitely has some "give" to it, which you can notice when you're mashing the pedals out of the saddle. (*I have mine setup as a singlespeed but I will be setting it up as a 1×9 for bikepacking and riding to the trailheads a little quicker)
There is plenty of room for a decent sized frame bag in the lower triangle, less with the size small frame due to the slacked top tube. Fitting 2 water bottle cages may be tight in the smaller frame size.
The "Monkey Nuts" work fine in the rear dropouts, but can be a little fussy getting chain length setup right. If you go singlespeed, take them off and slam the tire as far forward as you can, really makes the bike handling shine. I've found a tensioner to be necessary, but good skewers could probably remedy that.
The bottom bracket region gets a little "squirelly" if your getting after it, I always noticed it and it became more apparent when I picked up my Vassago frame which is aluminum. Steel is more forgiving and I believe a better candidate for bikepacking for sure, but it has some downsides and frame flex/power transfer might be one of them depending on what you like in a ride.
Weight. Its a bit of a tank, but not anything abnormal for a 4130 steel framed 29er. Honestly, don't buy a KM if weight is a high priority. The stock KM forks are like lead, but steer true and take a pounding on rocky trail without throwing the front end around. Setup tubeless with high volume tires, there is a surprising amount of dampening for even nasty bits of trail. Not sure how pounding away on a rigid for days on end with a loaded bike would feel, shocks might be nice there, but again its all preference.
Drops on the KM. I've seen a bunch of drop bar setups with the KM, so its definitely a good candidate for that setup. I'm looking into doing the same as you, but there are some challenges in getting the right fit (stem length/rise) and stretch with drops and I'm not sure I want to mess with it. I run Avid BB7s which are linear pull, so there are only a few brake levers that are compatible with mechanical discs. You also have to figure out shifting with the drop bars if setup geared, which takes a little more homework and expense. There are a lot of "alt bars" out that give you hand position variety without resorting to a trail drop bar. Just a thought. I have Salsa Bend 2 bars on mine with Ergon grips, they're very comfortable and natural, no discomfort for all day riding.
There is of course the Salsa Fargo, but I think that bike is best for the dedicated off road/mixed surface cyclist or die hard bikepacker. I haven't ridden one, but I considered it when purchasing the KM. Fargo geometry is more conducive to extended upright riding, comfortable when riding in the drops on the bars. I wouldn't want to race or try and keep up with the group on Tuesday night rides sitting on a Fargo.
Sorry for the mouthful.
Check out the Salsa El Mariachi as an alternative to the Surly, its in the same league, but has a more refinedto dropout setup for geared or singlespeed use IMO. Also take a peek at the Vassago Jabberwocky or Bandersnatch since you're looking at the Surly KM.
Good luck.