Naruto was selected because the 4th wanted him to be viewed as a hero.
Edit: Oh and because most likely Naruto is his son. And having a kid with the power of Kyubbi would so be helpful to the village. [img]i/expressions/face-icon-small-wink.gif[/img]
Also, please do not suggest that Naruto is the reincarnation of the 4th. The manga and anime have made it perfectly cleared that Naruto was born before the demon fox was sealed inside of him.