We are going to tow our Xterra with a manual trans behind our Motorhome.
The owners manual doesn't say what key position to use. Obviously it wouldn't be LOCK or START but which of the other two would be best. Any thoughts?

never towed a vehicle behind a motor home, but if you need the steering unlocked I'd say the Run position, if not the off position should be fine.

If you talking about using a tow dolly, you dont need to unlock it, if your towing it with all 4 wheels on the ground, then yes at least in the acc position, which means instal a quick disconnect for your battery, that way you can turn the key on and not have to worry about any accessories draining the batt on the ride, and wont need any tools in order to get power back if/when you need to drive the X.

In the case of an automatic, you could just pop out the little cover over the hole next to the shift lever, jam a key or something else down in the hole to press a little button and you can then move the shift lever without a key in the ignition. This functionality is provided in the event the vehicle needs to be moved without any power to the vehicle electrical system at all.
This doesn't have anything to do with the steering wheel locking, but is certainly handy for tow dolly use.

might want to read the nissan towing guide - I do not think that the xterra is approved for 4 on the ground towing...

I was not advised to tow mine with 4 on the ground without disconnecting the rear drive shaft. I ended up putting 4 on a trailer. Then again, I was driving from NC to CA and back. Hell of a drive.