IMO, powder coating is better for the magnesium as it provides more protection, and the baking process helps anneal the wheels, which should be done anyway BEFORE powder coating. Some people have experienced problems with bubbles showing up in their powder coat because the wheels may out-gas during the baking process.
I think the big advantage to just painting the wheels is that it's a LOT EASIER to touch up blemishes. In any case, let us know what you do, and post pics of your results!