1. If your TV is a fixed pixel display (pretty much anything other than good old-fashioned CRT), then it must convert any input signal to its native resolution. The amount and speed of cleanup processing varies by model. Generally, deinterlacing is the slowest part, so if you have a 'p' at the end of your HDTV resolution, you should have your Wii outputting in 480p.
2. Picture quality is pretty subjective, but I like to turn sharpness all the way down and turn off all the fancy picture processing like digital noise reduction.
3. There's nothing better than component cables for Wii. There are "better" cable technologies, but they'd all be massive overkill for the Wii.