Its really up to you where to put it. For those of us that ride in wet/cold/snowy conditions, putting the controller in the bag is a good idea. BUT, if you ride in hot conditions i.e. Colorado/SoCal/Arizona summers, mounting the controller on the frame is fairly essential for good cooling/airflow. I'm sure neptronix has to put his outside just cuz it probably wouldn't fit with 24s3p and/or that's a lotta amps running through that controller.
At this time of year, I wouldn't really worry too much about heat on the controller but once the temp hits 75 F plus, I wouldn't risk my $150 controller for the sake of looks. Most of us are pumping 500w steady and 3000+ watts peak through a tiny PCB. Quite a lot of juice. Those fins on the case are there for a reason.
As for protecting the bag, I wrapped my batteries in super thin cardboard and taped them with packing tape. I can remove the batteries from the little case I made easy enough for swell inspection. I lined the bag with a piece of plastic cut-board (available at hobby shops) which is bulletproof (almost) and very difficult to cut without tin shears (I tend to crash occasionally). I then spray glued on some of this stuff I found at work. Its basically what you would throw onto a futon to keep the mattress from slipping off for a little extra shock absorption. A thin piece of foam under that between the frame and cut-board. Harness has color coded Anderson power pole connectors for idiot proofing (Yes, I can be an idiot at 4:30 a.m.)
Not to be a jerk but this bag has issues. Its a little too wide and slightly saggy, the zippers are total crap, I'm sure Ill break one of them off by the end of the summer. They look like they are waterproof when you first get the bag but no. The seals tear quickly. It only comes in a 19" size (fits my 17" but just barely) and whats up with those mesh pockets? I tore through those in three days since the cranks rub against them a little and my jeans catch on the top of them when pedalling. The openings for the wires could be a little more protective of the elements. The decent things about it is the capacity of 12 5000mAh LiPos, the fabric is fairly good and waterproof enough, and it comes with
some protection for the bottom of the bag. Some people hate the logo but I dont mind advertising for a company that Im glad is trying to make homemade EV's an option. Another nice addition would be a small set of velcro straps on the inside of the bag along the top tube of the frame for tying up wires running through the bag.
If you do plan on purchasing this bag, its fantastic for the price. Just plan on making those sharp corners on your batteries/controller go away or you'll tear through any fabric.