I've had quite a few rotors discolor like that. The only problem is when you touch the rotor to the inside of your leg right after doing that. BTDT. The Hayes scar has gone away (although I thought it was kind of cool).
Other than the grooves, that rotor is fine. Rotors are capable of tolerating a great deal of heat. They're stainless steel!!!
The pads may be glazed and may need to be sanded (as posted above).
The debate between 160 vs. 180/185 vs 203 rotors will always exist - even within a given ride. I set my bikes up to have the smallest rotor I can get away with for the riding style of the bike or the ride. In other words, although I could install 203 mm rotors on all of my bikes, I don't care to carry around the weight all the time. Sometimes, though, I push the bike outside of the normal operation boundry and overheat the brakes and discolor a rotor or two (yes, you can cook the front like this as well).
If you regularly overheat the braking system - you should know when this happens because they will fade - try installing the next size larger rotor.