If your extension is only for DW5 or above then create a ZXP file as this will prevent anyone with an older versions of DW installing the extension. But if it will work in previous version then MXP is the file to create, as this can be installed in all versions of DW including DW5 or above.
When submitting your extension to the Adobe Exchange or even if you only offer it as a download from your own site, always indicate the version you are targeting and/or if it will work/has-been-tested in a previous version.
You've provided me with very sound advice. Thank you for your reply. I appreciate it.