What do you mean "best format"? I thought Workbench could only display IFF as wallpaper...
If OS3.9 displays wallpapers using datatypes then I'd pick a simple, low colour IFF so you're not slowing bootup with JPG.
PAL Hi-Res is 640x256, Hi-Res Laced is 640x512. Neither are the same aspect ratio of 4:3 that your monitor mask will be.
These resolutions are 4:3:
320x240
640x480
768x576
800x600
1024x768
1152x864
1280x960
1600x1200
2048x1536
1280x1024 is effectively (and bizarrely) a screenmode double the resolution of PAL 640x512. This is a little odd since it is mostly used in the PC market. To properly appreciate this resolution (and that of 640x512) you'd either need a squarer monitor (like LCD panels) or adjust your onscreen dimensions with the monitor settings.