Looking at some snow tires for my 08 TL (auto). I've done some reading and it sounds like interwebs favor smaller wheels for snow tires for better traction. Is there any truth to this?

I can get a decent set of tires for my stock rims by themselves for 700 bucks, or I can get a 16" rim/tire package (including tps, mounting, balancing) for 840 bucks.

Which route should I go?

 

i went with oem 235/45/17 on my stock rims.. .eventually will upgrade to 18" and keep the 17s as dedicated winters.

Blizzak LM60

 

If your tires are shot on the 17's and you can afford to get snow tires and then buy another set of rims and tires for the summer, I would get the 16" dedicated rims & snow tires. The key is to go with norrower tires as they plow through the snow easier than wider tires.
I have always had a dedicated set of wheels for the winter for all my vehicles. And the Blizzaks are the best in my book. I don't buy anything else.