You have plenty of options. You could Hardmod (the chip like you said), softmod (follow one of the guides here) or you could get a WODE (have a look also on this site about WODE discussion). All have their advantages and disadvantages, but with a little reading you will pick up on which one better suits your needs.
As far as which wii to soft mod, if you went down that path, I would suggest the older one. If you follow Mauifrog's guide, it will upgrade your system menu anyway in one of the steps. Most games work with soft modding - search for the thread titled problematic games, and it tells you how to get most of them working. There are very few that don't work at all. Most of the problems people experience here when they soft mod wii's is simply because they don't follow instructions properly.