That choice will depend on what you're doing with the bike, of course. But on mine, I decided to use the rear pegs and fabricate rear sets. For the shifter side, I used the left-hand side peg set up from a CB400F -- taking it apart, and making a longer shaft for the linkage. On the other side, I eliminated the brake cable and fabbed a lever and linkage to the rear drum. I bought better looking rear sets from someone on this website (search "rear sets" and you'll find 'im, and I have the ones for a CB350. They'll take a little adapting. But the set up I made got introduced to Boston weather when I moved here fro Phoenix, and immediately started showing rust.
The only tricky parts are making the rear brake work properly, and figuring out the kickstarter, which will likely come into contact with your brake lever, depending on how you do it. I actually have a CB or CL175 kicker on there that has enough of a bend to clear the lever.
If you are interested in more on the CB160 and café builds, there are a tone of guys in the Northwest who are building them and racing them in vintage under 250cc classes. There is a ton of online content about 160s, including people chiming in on rear sets and other mods. Check out: Lossa Engineering, Vicious Cycles, The Honda Twins forum, there is a great thread on ADV Rider, etc. Michael Bateman has a great build page here: http://www.groupwracing.com/160building.html and includes links to parts for purchase.
My bike is not a racer, but for me to zip around town. I kept the engine and internals stock, but I use pod filters and more free flowing exhaust, which needed a mild rejetting of the carbs. Here are a couple photos: http://wordsofwezdom.blogspot.com/2013/03/1969-honda-cb160-15k-milestone.html. Others, however, do all kinds of work to their 160s to get more out of them, including replacing the engine with the rare CB175 sloper engine (15 extra ccs and one more gear), boring, cams, pistons, ignition, etc. They are great little bikes and you can do a ton to them for relatively inexpensively.