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Same as .avi and compress with quicktime pro, sorenson squeeze, or something like that. The only time you don't need to de-interlace the footage is when your putting it onto a DVD for the TV. The DVD players automatically de-interlace the footage when you play the video.
But there should be a little box you can check to de-interlace in premiere. Thats how it is for Premiere pro 2, I don't see why there wouldn't be an option for de-interlacing in Premiere CS3.
I have Premiere Elements 3.0 I meant to save in .flv for youtube and forgot. hopefully I can replace the video cause those lines are obnoxious. compression uses h.234 - I have seen a lot of people say that sorensen sucks. I don't know, I do know that youtube sucks but it nice having all the recent uploaded videos in one place.
sorenson is what jason used for quick. i've had pretty good success with it for stuff i've put online or done for school projects that didnt get posted to youtube/google/brightcove, etc. if you're really concerned about video quality, buy some server space and just host the files for people to download, you'll have more control over the end result. that way youtube et al can't crap down the quality of the video.