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I simply wouldn't try to upsize and convert an already compressed file like a WMV. I'd rather go back to the original tapes if I had to and re-edit the footage from there if you really want it to look good. I couldn't tell you offhand which would look better in your circumstances, but it would be easy for you to make a short test and see for yourself. This isn't something one can necessarily predict based solely on your description.
Obviously there are other factors that come into play like how good the source is at such a small frame size and was the footage deinterlaced at some point along the line like it probably should have been and for example if you used a great codec like the ON2 VP6 codec to do the encoding. I have also found there to be variations in finished quality between say Adobe Flash Encoder vs Sorenson Squeeze for example.
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