What's the difference between fresh and frozen blueberries for baking?
When you are making blueberry muffins, frozen and fresh blueberries will give different end results. Frozen blueberries will almost "melt" when you bake the muffins, because the skin becomes more fragile after freezing. If you use fresh blueberries, they will be more intact after baking and will sometimes still "burst" when you bite into them. Which of these outcomes you prefer is entirely subjective (though obviously frozen are better).

As for the taste, some blueberries will have more taste than others. If they are grown out of season, they will most likely be flavourless. This goes for both fresh and frozen blueberries. I've found a brand of frozen blueberries that I use for muffins that give a have a nice taste year around: others may be terrible.

For the remark your wife made about frozen blueberries being rotten: I don't know where you live, but that is most certainly forbidden in the US and Europe, and probably most places where frozen blueberries are available. That is the only part of her argument that was most definitely wrong. Everything else is subjective or depends on the specific brand of blueberries or even the time of year.