You can get good results both ways. I think the basis is to lay down some good loam - poor soil will grow poor grass. Poor grass makes it easy for weed seeds to find a patch of dirt and germinate. Strong and healthy grass will actually out-compete weeds, and will not allow weed seeds the room to germinate and start.
You will have to weed a little bit more (sometimes a lot more) with seed. However, you definitely can achieve a very good looking lawn. Get good seed, good loam and make sure you water it properly.
Mixing in some good compost will help with the water retention as well. You will not have to water as much in the long run, and will save you some further $$ over a couple of years anyways. Definitely a good idea to do this regardless if you are using seed or sod, in my opinion.
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