Married filing joint or separately?

No. You have to figure it both ways, and don't forget the state, if your state requires you to use the same filing status as on your Federal. A couple of notes about items you mentioned:

Alimony is an adjustment to income, which means it's deductible whether you itemize deductions or not. As for deductions, if you file separately, both of you must use the same deduction method, itemized or standard.

As far as state, we live in WI which is a community property state. Yes, in WI we have to file the same as we do for federal. I know about both of us having to either itemize or take the standard. Since we are in a community property state, do we split the itemizations between both of us if we file separately?

I was filling out a W4 worksheet and if I file married jointly, my wife who pays the alimony, can claim 11 exceptions federal and I should claim 3. Now if we file separately, she is suppose to claim 0 exceptions and I still claim 3. Doesn't make any sense to me.

Compute your returns both ways and file the set that results with the lower combined tax.

I've never had to deal with community property in detail, so I won't venture a guess. I know IRS has a publication devoted to community property issues.

While W-4 allowances are a totally separate question, I don't see how you could be doing the worksheets accurately with unanswered questions about community property and separate filing. I suggest you bone up on that, then take another shot at the W-4.

It might also help you to go ahead and finish your 2007 returns first. I have a feeling that joint filing will be better. Even in non-community states separate often makes more sense only when one spouse has significant deductions (medical & miscellaneous) that have AGI-based exclusions.