The answer to this question is entirely up to your situation and your goals.  However, knowing the basic principles behind each can help you arrive at this answer.  People who should modify, are those which love their house, want to stay there no matter what, are close to being able to afford their payment, plan on being there long term and for whom renting does not make much sense.

Those who should short sale are those who feel as they are so upside down they will never be happy with their home.  Or maybe that they don't really care for their home that much and the payment is really not worth it.  Also those who still want to maintain their credit.