I'm doing a month-long bicycle tour, mostly in southern Spain although starting in Madrid and ending in Barcelona with train and bus connections. I take a lot of slides when I travel (~500/week) with a SLR, which I keep in the handlebar bag on my bike while riding. For city exploration days on foot I usually use this, but am somewhat concerned due to reports of thieves using knives to cut the strap. From what I've read I will keep it in the front instead of at the back or side, but am also considering replacing the nylon strap with one of the security straps that also has wire webbing built in.

I've also considered getting one of the security type fanny packs (worn in front with several security features) or bringing a small day pack, but these seem to also identify the wearer as a tourist and have their own vulnerabilities. However, I may spend some time hiking during the trip and either of these is certainly more comfortable than the bar bag.

I'm large and tend to move purposefully and alertly, constantly looking all around, so am not a traditional mark in that regard. However, I don't want to lose my camera while at the same time want to have it with me while exploring cities.

I'm wondering if those with experience think that I should be reasonably OK using the handlebar bag as long as I'm aware of my surroundings?

I think the key, as you noted is to always be aware of your surroundings. Whatever you decide, do not just sling a bag casually over your shoulder, especially if there is any kind of crowd.

I travelled to Madrid, Sevilla, and Barcelona with a small day pack with no problems. However, I kept the zippers locked together (so no one could just reach into the bag), and I often kept the bag on backwards (so the straps were around my back and the bag at the front) and I could clutch the bag easily. It was winter, so I think I looked less strange than I might have in the summer. On of my frends in Madrid carries one of those one-strap day packs with the pack part in front.

The only close call I actually had was when someone tried to grab my coat that I had laid on a bench momentarily. I noticed his change in speed and grabbed it out of his reach just as he ran by grabbing at it to swipe it.