When I stretch out the footage to 40% I'm still getting choppy playback as though it's not being interpolated, is there a specific way to setup my comp, or do I need to go to Interpret Footage and do something different there?
Try lower field first in the interpret footage window. Leave the clip as a 29.97 file, setup your composition to 23.976, then do the 250% stretch. You might have to increase the length of your composition to accomodate the longer clip.
You shouldn't really have to do anything else.
Just be clear though, you shot 60i footage AS 60i footage, not 24p right? As in there's no pulldown indicated in the file?