I think it depends on what the native format of the Wii is, and what does the best conversion.
If the native format of the Wii is 480p60, converting to interlaced might not be best. The TV can accept 1080p60 but the maximum the AVR can output is 1080i. It would be better if the AVR could convert and output at 1080p60.
I think the best format (if the Wii is natively 480p60 - though it apparently drops the frame rate with more controllers), is to just send the video as is and let the TV do the upscaling. It's possible that the AVR could have great upscaling (to 1080i) so you could try each format and see which you think is best, but in theory, I think probably passing it as 480p60 (if that's the native format) would probably be best.
Looking for some technical discussion on converting between interlaced/progressive signals.
I think if the source is progressive, it's usually best to keep it progressive, at the same frame rate.Edited by Joe Bloggs - 8/17/12 at 5:52pm