Depending on when this collection happened, neither may help, as often when a collection account is paid off, it updates the "date of last activity" on the account, which can impact the credit score. Credit scores are sensitive to the event that happened and when it happened... so if the collection is from 2007, and you pay it off, the credit scoring models can think it's actually a fresh collection from July of 2011, hurting your scores.
I haven't noticed any difference in scores between someone who has a lot of paid collections and a lot of owing collections, it's just the fact that a collection exists is damaging in itself.
If you are to pay it off, then I'd ask the collection agency if they can refrain from updating the date of last activity (make that deal, in writing, before you pay them).
Paying the full amount vs. paying a "settled" amount won't impact your scores any differently from what I've seen. For further advice (not just regarding this collection, but for advice regarding your overall credit situation) I recommend you speak to people who are "credit guru's", which you can find a plethora of them in the "Understanding FICOÂ® Scoring" section at http://ficoforums.myfico.com/
- they answer your questions for free, just like here at Trulia.