Definitely put it above the wainscotting. What you need to do is cut a piece of paper and tape it in various heights on the wall. Lay on the sofa, sit in your chair, etc., and see if there's any eye or neck strain.

A few inches above 40 inches is a good spot, IMO.

I've never heard anyone complain that they bought too large a flat screen. I have heard complaints about getting too small a flat screen.

A lot depends on where you will be sitting.

For a 55" screen, the best distance is about 7-10 feet away from the screen. You can go further away, or closer, if you wish, but the viewing distance is not the same as with the old TVs.

You need to figure out where you want the TV and where you will be sitting. Then cut a piece of cardboard to the size of the TV and pin it on the wall. Sit down and look at it. Do you have to crane your neck? It's too high. Experiment a little to find a height that works.

You can also buy wall mounts that allow you to raise and lower and swivel the screen, so you could mount the TV above your wainscotting and then move it to a good viewing angle.

I would go as far as putting the TV on top of rubbermaid containers (or other boxes) at various heights and trying it out in the spot. We have our TV above our fireplace, which is only ok because it is tilted and our furniture is far enough away. You need to figure out what looks good based off of your furniture placement...

we mounted a tv above the fireplace in the sitting room and have it on a swivel mount---they do allow you alittle more flexibility in mounting.
our tv(55") in the family room is 22" off the floor and is comfortable, but it could definitely be higher and comfortable... i think you have quite a bit of leeway for comfort!

Would definately go for eye level viewing when you are seated.

We mounted our tv in the great room above the fireplace, I don't strain my neck looking up however, i find myself wrinkling my forehead looking up toward the tv constantly(my botox clinic loves this). Other than that i can only suggest getting a smaller dog.

Our 65" plasma sits on a console that is 30" high. Sofa is 13.5 ft away from the screen.

I agree with others who say to try the paper/cardboard experiment. It also depends on how high your ceilings are. If you have low ceilings, hanging the big TV above your 40" wainscoting may not look right.

Sorry but I disagree with 7-10" being the ideal viewing distance for a 55" TV. I think it's further than that, though I can't back up my assertion because I don't have time right now to look up the info.

Ditto what Oakleyok suggested.

Will there be any furniture below the TV?

Oops, I meant to write 7-10'...

7-10"...made me chuckle. My MIL lives in a tiny apartment and her neighbor bought a 70" monster so he could watch the Superbowl. He couldn't be more than 3 feet from that TV in his apartment!

We'd be about 12-15' back, it's comfortable with the TV we have now, which sits up closer to use due to the huge box it's in. We're not planning to have any furniture below it because our cat will try to sit on it. I'm happy to reclaim the floor space (will probably have a dog bed there).

I was looking at a 42", which I thought was more than enough but DH said if we were going to get a new TV, we were getting bigger than what we had. I guess it's my own sense of things that I think this tv is a monster...I usually watch movies on my 22" computer screen and view things on my iPhone. (No wonder I need better glasses!)