MWs hit any kind of target, the only choice you have is "out of cover" or "in cover". So in your example you either say: "I'm ignoring the stuff in cover" and your hits are assigned to the AVs and any INF not in cover, or "I'm hitting the stuff in cover" and your hits (at -1) are assigned to any unit in the target formation (you do this for all three type of fire (AP, AT and MW) separately of one another).
On your "wasted hits" worry, see the FAQ for
2.2.6. Because the MW hits are allocated after the regular AT hits, your "out of cover" MW hits can go on the infantry that were claiming cover against the AV that is no longer there when MW hits are being allocated. The general rule in EA is that not hits should be wasted.
Edit: Actually, if a WE is in the target formation you also have a choice around that too (see
3.2.1)