Overclocking by the FSB will give you better performance, but there are more factors to consider when compared to overclocking by the multiplier.
In general, you should always run your FSB and RAM clock at the same speed. If you increase your FSB from 133MHz to 166MHz then your RAM needs to be capable of running at 166MHz as well. If you have PC2700 (166MHz DDR) or something faster then this won't be a problem, but if you only have PC2100 (133MHz DDR) then the RAM may or may not run at 166MHz depending on how much it will overclock.
Also, your motherboard has to be capable of running at the higher FSB. A lot of motherboards have BIOSes that allow you to increase your FSB to pretty high speeds, but if the maximum supported FSB is only 133MHz then it may not be stable at anything faster regardless of what the BIOS is capable of.
Finally, you need to keep an eye on your PCI and AGP bus speeds which are 33MHz and 66MHz, respectively. By running an out of spec FSB you will also be running the PCI and AGP buses out of spec. You can try to keep the PCI and AGP buses as close to their spec speeds as possible by playing with the PCI and AGP dividers (if your motherboard BIOS allows this). In general, you shouldn't let your PCI bus run much faster than 40MHz and your AGP bus much faster than 80MHz. Of course, if you have a motherboard that locks the PCI and AGP bus speeds, then you don't need to worry about this issue.
So basically, if you overclock through the multiplier, then you know that when you've hit the limit it is indeed the CPU that's holding you back. If you overclock through the FSB, then other factors could be holding you back but you'll get a bigger boost in performance. The trick is to play with different FSB and multiplier combinations until you find the optimal one. Usually what I do is first leave the FSB alone and just increase the multiplier until I can't overclock any higher. This way I know what the limit of the CPU is. Then I will incrementally back down the multiplier and increase the FSB and try to get as close the the limit as possible while maintaining stability.
One last thing, before you do the pencil trick, take a look at the L1 bridges to see if they're cut. If I remember correctly, many of the 1400MHz chips came unlocked from the factory, so you may not need to do it.