[Zeke]

Whichever method you do, always stain and put sealer on before puttying nail holes. If you get the right color putty, you will never see it. Puttying after the first coat keeps the putty from smearing into the grain and leaving a light spot.

Depending on the choice of wood, I sometimes use 2-3 colors of putty. The darker goes in the soft grain where the stain is darker and so on. I've even been known to "streak" my putty when a hole is on the edge of light and dark grain. I will do this at eye level.

Do what is easy for your wife. I'd have t agree that staining the overhang on the treads over paint would be tedious.