As for the exercise vs. diet thing, I lean heavily on the side of exercise.
For one, exercise is fun and dieting is not.
Now exercise does increase appetite, so if you just eat more, you won't get the full benefit of it. In my opinion though, most people do not get fat from eating when they are hungry, they get fat from eating when they aren't.
People are creatures of habit, we get in the habit of eating at certain times, and then we always eat at those times whether we need it or not. Heavy exercise pretty much forces you to schedule your eating around when you actually need to be eating. Of course this can work against you if you get in the habit of eating more and then stop exercising, but that should be obvious.