Having received the scholarship once as an undergrad, an having been received the embassy recommendation the second time (fingers crossed), both times I wore a suit and tie.
In the most recent case, I was a bit older than the other applicants, and I wore my best because I knew it would be subconsciously expected of me, having been out of college and in the work force a while.
Additionally:
1. I wanted to emphasize the fact that I had more experience than the others who were just graduating.
2. I wanted to show the interviewers that I was very serious about the scholarship.
I know that I got the scholarship the first time way back when because I was by far the most presentable... two of the girls that were in line were dressed shabbily, and the guy was wearing normal clothes.
Remember, the interview is about making a good impression. Your clothing says a lot about how serious you are about receiving the scholarship. It won't make up for a weak application, but it will grease the wheels in your favor when it's down to you and someone else.
And remember, being comfortable and pleasant is marginally more important than appearance.
Last but not least, I was notified of the interview about ten days in advance.