Go for tubeless ... it's a saviour! And you can fix the puncture yourself as well.

2) is slightly tricky which I have no idea about. :)

I am on tubless for a year now, and punctures only happen in a place where I can get in changed. Key word being "get in changed" heh! Two months back one of the tyres seemed flat, so had air pumped in, again flatish after a few days. Knew it was flat then ditto with another tyre couple of days later.

With tubes the goddamned tyres would go flat when you are in the middle of a journey.

Make sure that the OD, outer diameter remains the same
your current size is 165/80. So your width is 165mm and your tyre sidewall height is 80% of 165= 132mm
I changed my indica tyres tube type to tubeless
Original 165/65. Now 185/60
My sidewall height increased by 5mm which is negligible
For palio i would suggest 195/65 or 185/70 in tubeless.
Go for non directional tyres because in case of directional the direction of rotation is towards one direction only and so you cannot fit LHS side tyre to RHS and vice a versa
I have directional Potenza GIII, 185/60, and they offer great grip

As for size issues. you can increase the width of the tyre but it is not recommended to change the sidewall height by more than 5mm

you can also check out http://www.team-bhp.com which is indias biggest and most active car community. Since it is actively moderated by 10+ moderators, spam and stuff like that which is common on yahoogroups is not there
the site is down for maintainance and should be up by today evening.

Stay away from bridgestone!? thats weird. Bridgestone makes great tyres! Do not listen to those fiat workshop guys they speak what comes to their mind. Not just fiat even other dealers do that. One toyota dealer said that corolla is better than optra because optra has tubeless tyres which are not good. When asked what about innova, which has tubeless tyres, which means its not good. The guy fumbled and said that tubeless tyres are good for MuVs only! And he fumbled even more when he was informed that the new facelifted corolla will come with tubeless tyres!
Go for bridgestone. directional is also okay if you dont mind having your tyres restricted to one side only. But make sure the spare wheel is non directional. Directional potenza tyres give excellent grip in all conditions. And i can vouch for that. A bike guy survied with a few bruises just because i had potenza. If i had been on my 165/65 MRF, he would have landed in hospital. That dude crossed an express way without looking , leading to an almost pileup like scene on the road. Luckily the guy behind me was a skoda which has amazing brakes!

In that case stick to goodyear. For my non directional spare wheel i have goodyear Ducaro, but i guess its been discontinued and replaced by a newer model. another good tyre according to Auto Mags is the Apollo Acelere, but i did not see much acceptance for it in the market, people dont trust apollo.

whichever tubeless tyre you buy make sure the speed rating is above 190kmph. Palio can do tops 140kmph and its good to jhave speed rating about 40% above the car capability.

You are welcome :)
And as for the cost, be prepared to pay about 300-350 more /tyre. so total cost over tube type is 1500rs. Your old tyres can be sold for 150rs/piece.
And go to an goodyear showroom(Any big showroom will do)
Small shops sell seconds also!

As a Michael Schumacher fan you should go in for Bridgestones;-)

PS: I have Bridgestones on my Sienna (nee Petra in new avatar, nee Palio with dicky).

No changes were required, but then I believe that the Sienna rims and the Palio rims are not of the same size.

Heh! For that I had to go across to the said tyre;-)

It is a 175/70R13.

Let me check, I would have gone for them in 2002, but each tyre was costing little more than Rs 1000/- more than tubed. This time I found they were I think abt Rs 300/- more than the tubed.

Ah go it... they were 2450/- each all inc. June '04.

Talk to a knowledgeable mechanic (knowledge being the operative word) who knows the car in and out before you take a decision, because a lot of cars don't run well with tubeless tyres.

Does Michelin have tubeless stuff in the spec you mention?