I'd say imperial. Given that the first game will take place so early, I'd be interested in seeing what the folks who support the empire were doing before it was the empire. And besides "We are the only thing that prevents those armed lunatics from attacking peaceful, right thinking folks." Second would be rebels. Of course, all the options have a lot of fun.
As far as characters, I've got a few ideas. The first is a chemical addicted discharged military man who's seen better days. He now mopes his days by, runs a little shop in the middle of nowhere, and tell the same five stories about the glory days to anyone who will listen. The second is the typical bright eyed, bushy tailed kid who has a lot to learn about the world, but a bit of force potential. The third I was thinking of either a charismatic drifter, or someone politically involved. Either way, he'd make it by on his charm and wit, but have no real place to call his own. The last I have in mind just now is a tough guy, maybe a recently enlisted soldier or a bouncer, who just does what he's told and has never thought of why. He assumes that whoever's giving him orders knows what they're doing.
I can come up with more, but those are what's in mind now.
By the way, in the pre-Phantom Menace days, would the "rebel" faction mean rebel in the typical terms, or just the opponents of the movements that would become the empire? Similarly for the imperial faction.