If this rivalry was based on annoying disillusional fans, then I'd place Penn State as number 1. Since its based on history, competitiveness, quality of opponent and mutual respect/history, then I'd have to put them behind Michigan, Wisconsin and MSU.
PSU has 3, 10 win seasons since 2000 (1 less than Iowa) while Ohio State has 10. So they just have not been a great team.
Ohio State is 9-3 in the last 12 games, so they have not been competitive.
When I think about most painful losses, I can think of 3 right off the top of my head with MSU (3 undefeated seasons ended at the hands of these guys without looking it up), 2 for wisconsin (broke our record winning streak and while we were undefeated) and none really for Penn State.
We have only played each other 28 times, which is not really that much for a major rival.
I like beating them because their fans suck, but from a football perspective, not one of the most important games of the season.