This is the ultimate YMMV situation. It simply depends on your travel goals. And those goals can differ depending on where you are in your life.

For example, when I was 20, if you'd told me I could get miles like this through credit cards and hop on a plane for free or vastly less than the cost of a full fare ticket, I would have burned those miles up on one coach ticket to go see a girlfriend who was doing an archealogical dig in another country at the time. At that point in my life, I had a lot of time but very little money to spend plus I was willing to ride in a cramped coach seat for many hours to arrive at a place where I might spend some days scrounging up the cheapest accommodations possible.

Now, I'm 58, I've got a good job that allows me to do significant traveling even without FF and hotel plans and credit card bonuses. But that good job, despite four weeks of paid vacation every year, still demands that I spend a fair amount of time actually working. I'm no longer willing to sit in a coach seat for much more than three hours at a time. I want a nice hotel at the end of the day although it really does not have to be luxurious.

Under the second scenario, I'm looking to use the points/miles I earn to supplement what I'm willing to pay to get a business or first-class seat or a hotel located a little closer to the action. I'll pay the amount for a revenue ticket that I would have paid before I discovered FT a couple of years ago and then upgrade with miles. I'll use cash and points options for hotels or I may use points for a couple of free nights in one place so I can take the money I would have budgeted for those nights and spread it over the remainder of my hotel budget so that I can perhaps stay in a unique property (such as a B&B) that might not fit within any hotel loyalty plan.

Earning works the same way. I'm willing to use my miles/points, but I'm always keeping an eye open for a good or timely earning opportunity. For instance, my job requires little business travel, including flying, so I'm not earning a great deal through that channel. Thus, until recently, I'd never achieved status with any airline's program. Because of a couple of flights I took (and paid for and upgraded with miles) with BA over the winter, however, I reached their Bronze status, and with one decent transcon in first class on AA, credited to BA, coming up this summer, I'll reach Silver, which will increase my earnings rate on BA flights. I'll pay for the legs of the flight that will get me that status and then use miles for the remainder.

I know I haven't given you any specific answers to your questions, but I think some of the answers become more obvious, the more you figure out what your short, medium, and long-term travel goals are. To me, that's one of the great things about FT. No matter what your goals are, you'll find information here to help you reach them. And the more time you spend around here, the more likely you'll get enough information that you might even reassess your goals.