I'm new to 4th edition but have been running in 3rd edition campaigns and am making the jump. I'm thinking of taking the spirit pact quality and am wondering which spirit with the possession quality would be best to take as my spirit. I would appreciate any advice. Aside from telling me how ignorant this quality is.

It depends which pact you want, really. Whether the spirit is possession or materialisation shouldn't matter too much. Choose your pact and talk to your GM about what sort of spirit you made the pact with.

Well, it really depends on what type of pact you have, and what tradition you are. Assuming you're going Voodoo (it has a good array of spirits, with access to spirits that can get everything from Weather control through Innate Spell to any Combat, Technical, or Physical skill in the game), and want a dream pact: A guardian spirit might be an interesting choice, as might a guidance or task spirit. You probably wouldn't get anything for free, but you would have access to a potentially valuable or skilled ally.

• With a guardian spirit, sleeping turns you into a (supernaturally) tough warrior with combat skills and the Magical Guard power, meaning the spirit can protect the party whilst you're asleep. If your mage is wimpy, it might even be amusing to really tire yourself out just before a run, so you can fall asleep if it looks like you're gonna get into combat.
• A guidance spirit could divine for the group whilst you're asleep, if your party's willing to pay, and also has the Magical Guard ability.
• A task spirit could be given technical skills, like Armorer to take care of the group's equipment or Forgery to make IDs and similar. Of-course, all of this is at a price. You might get it for free, however, for acting as the 'middle man'.

Of-course many of these functions could be done by summoning spirits and ordering them to possess you at night, but the advantage of the pact is that the free spirit will develop more character and, in time, more abilities. I personally like the idea of the forgery spirit, who runs his own forgery shop both for our team and for other takers. It might throw up some interesting results, and plot-hooks.

The problem with Dream Pact (and Possession more generally, unless you take the Channeling metamagic) is that you don't have control of your character during that time. The spirit just uses your body and earns its own karma while you'd otherwise be snoozing.

Is that really that much of an issue? The spirit will want to keep you alive, as otherwise it loses its source of karma. There's nothing to stop you from contacting the spirit normally and making a deal with it to do XYZ, in-fact it'd be much easier as you have a pact with it. Sure, you don't gain anything super snazzy, but you don't really lose anything either.

Your GM could simply declare that you were killed when the spirit was doing something, but I've yet to find a GM (that people actually play with) who's that mean.

Actually, it's more that the spirit just goes off and does its own thing. There's a PC in my group who has a Dream Pact with a spirit and it hasn't yet had any impact on his life whatsoever, because the spirit always has him home by 7am...

No to killing. Being dead removes all issues with what the spirit did. Did you ever wake up to find ganger parts all over your flat? Threatening the territory and well-being of a beast or guardian spirit isn´t wise.