Mattress stitch will give you a nice flat seam for attaching the ribbing armbands. You can also use it for the remaining seams, but IMHO backstitching the shoulders creates a firmer seam that won't stretch.
As for the two colors: if there are large sections of each color at the edges of each piece (wide stripes, for instance), match the sewing-up yarn to each section. For narrow stripes or a mixture of colors, use either color. If you do mattress stitch or backstitching carefully, the yarn you sew with won't show on the outside.