I wrote an article on
marketing your web site that you might want to read. There is no right and wrong, you should do both. Paid links have gotten a bad name, but there is a misconception there. When you submit your site to a lot of the
best directories you are not paying for a link, but you are paying for an opportunity to have your site reviewed by a professional editor and they don't accept all sites submitted. Those directories are actually recommended by Google. They definately give you a quality backlink from a trusted source. They (Google) just doesn't want to see the automated, massive link farm submissions to manipulate the rankings. But those strong directories won't accept your site if you don't have quality, original content, so that should always be your first step. Write good content for your own site and then promote that site.