The average diamond engagement ring sold in the U.S. is .33 carats total. So anything above that is gravy.
I recently bought a diamond engagement ring for my fiancee last October, and I did quite a bit of research on the subject beforehand. My best advice would be to find a reputable, well-known local jeweler. Not one of the mall jewelers. My fiancee actually used to work in the jewelry department of a major department store, so she knew her diamonds beforehand -- there was no fooling her with CZ or sub-par diamonds.
Given how much of an investment you're making, it's worth going to a jeweler who will let you examine the diamond under a 10x microscope, in the sunlight, etc. Don't half-ass it. Research, research, research, shop around (at good jewelers), then make your decision.
As for your specific questions; most women will not see a difference between a G, H, and I colored jewel. My fiancee, could, though. Nor can most tell the difference between I1 and VS1. Most women (and I would agree that most women are TFP are not the "most") look at size above all else. Which just so happens to be the most expensive factor of diamond pricing. I'd still go with quality over quantity though. I could have afforded a shitty .75 carat diamond ring, but I knew my fiancee would appreciate the quality of the .49 carat ring I got her. If your fiancee doesn't know the difference, you can always explain it, and she'll love you all the more.
As an aside, no, my fiancee did not demand a diamond engagement ring. In fact, we got engaged long before a ring entered into it, and she insisted many times that she did not want a ring. I may be old-fashioned, or whatever, but I felt that if I was going to marry the woman I loved more than the world, I should do things right. Again, I may be old-fashioned, but it made me feel good, and I love how it symbolizes our love for one another.
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