The main reason why Orochimaru wanted Sasuke rather than Naruto, was Itachi Uchiha.
Sasuke Uchiha, was developing into the prodigy that his elder brother Itachi was. Orochimaru had experienced Itachi's power first hand. And it proved too great for him.
Another reason, was the Uchiha clan's famed Sharingan. Itachi's prowess with his Sharingan was outstanding. Orochimaru expected the same from Sasuke.
Since Orochimaru couldn't take control of Itachi's body, he decided to settle for his younger brother's.
As to why Naruto wasn't chosen, Orochimaru favoured Sasuke over Naruto. Because at that time, Naruto was at the back of the class, and Sasuke was the Uchiha prodigy. Also, the fact that Sasuke is Sharingan abled and Itachi's brother, outweighed Naruto's overall.
The two reasons as to why Orochimaru used the Five Elements Seal:
- He wanted to disallow Naruto from using the Kyubi's chakra.
- And to tamper his control over his own chakra.