I got married in 2010 and my wife came with me to US after marriage. While filing taxes I applied "Married Filing Joint" and for her ITIN we filled a W7 and attached with the returns and sent to Austin IRS address. Just now I came to know that I need to attach a notarized copy of her passport and Visa with the application. What will happen now?

Secondly, MN is not accepting "Married Filing Joint" without her SSN or ITIN.
I believe because of the mix up, ITIN may not arrive before Apr 15?
Do I need to apply for extension?
I'm expecting refund from both federal and state.

The WORST case scenario is that the IRS will reject the ITIN application and process the return without your wife as a co-filer. If that happens, you will need to amend the return and re-submit the Form W-7 WITH the notarized passport photocopy.

Hopefully, the IRS will put the application on hold and mail you a request for the notarized passport photocopy.

In either case, you must wait for the ITIN before filing the Minnesota return. Since you are owed refunds for both returns, filing after the 15 April 2011 filing deadline is not a problem.