What options would we have to add wireless sensors to our existing system?
If using the DSC PowerSeries PC1616 a PowerSeries Wireless Receiver RF5132-433 could be used to support up to 32 wireless zones. These would be on the DSC 433Mhz frequency.
Should we consider an upgraded panel instead with newer encrypted sensors?
That depends on what you are looking to add/control with the alarm panel. Programming is easier on a panel like the Qolsys IQ Panel 2+ and having the added encryption is better for wireless sensor signal transmission.
How hard is it to move to the iq2 for example from the DSC 1616 and keep the hard wired doors sensors and siren we. have now and replace all windows with wireless?
The Qolsys IQ Panel 2+ does not work with a lot of hardwired zones natively. You would need a hardwired to wireless translator module, like the PowerG PG9WLSHW8 to convert wired sensors into wireless.
Any other zones could use wireless sensors as needed.
We have a 2 story house with one alarm panel on the first floor by the door and the dsc panel is located in the master closet on the second floor so wire re-use of the existing panel would be ideal since running wires is not easy.
The Qolsys IQ Panel 2+ works with the IQ Remote and the DSC PowerG WS9LCDWF9 Wireless Keypad if a secondary keypad is needed. The IQ Remote must be powered off of its included power supply (same as the IQ Panel 2)
Home automation control through the Qolsys panel is largely Z-Wave. This can be controlled locally and through Alarm.com. Compatible devices would be switches, lights, locks, bulbs, thermostats.