Mike, Sony recommends Interlaced for NTSC video and Progressive for stills. The WV600 is adjustable and allows some control over the DRC line doubler. Do you own this set and have you tried adjusting DRC? If so, let me know what you think.
Dramas and sitcoms (and other material typically shot on film) I use Cinemotion. It's not as accurate as an iScan, but worse case scenario when it loses cadence it drops into 'video' mode which should match Progressive. Personally I think TV that was shot on film looks better this way than 960i.
Frankly, I have switched back and forth between progressive, interlaced and cinemotion and haven't really noticed any difference. I want to "set it and forget it" so I'm looking for the best all around choice, which I think wold be the interlaced.
Still not sure about the Palette settings. I think I like it with the clarity turned up quite a bit with the reality turned all the way down. It appears, to me at least, to remove a lot of the grain.