All the scenarios in which the Big Ten has been divided East/West that I've seen that has IU and Purdue split up has Purdue in the East and IU in the West. Why is this? West Lafayette is farther west than Bloomington (and South Bend for that matter).
To answer the other question, Notre Dame would be far and away my number one choice for the 12th team. My second choice would be Pitt.