I use PNG image sequences because of the lossless compression. TIFFs are also lossless but the resulting files are larger. When rendering from iClone they have no particular advantage. JPG files are lossy and should be avoided.
Besides quality, the advantage of working with image sequences is that it is easy to rerender part of a scene or even a single frame. When rendering to video you would have to rerender the whole scene. I've seen that some users want to render a 15-minute project in one go. It is better to render by scene, which would usually be a minite or less, and then use a video editor to put everything together.
Another advantage is that you can do interesting graphic post-processing with image sequences. I have been experimenting with using Photshop and After Effects to give to change the look of my iClone renders.
One possible disadvantage of image sequences is that you don't have the sound. I never use the sound from iClone. I have dialog files that are used for lip-synching and that are then combined with the image seqeunces in my video editor (I use Vegas Pro). If you want to use the audio out of iClone, you can do so by rendering to a .WAV file. This is an option under Video rendering.
EDIT: Mark was quicker...:unsure: