So you can only do 3 materials with that? Does not sound that good to me. Currently I use the vertex paint for adding diffuse color to the textures, this gives you an individual diffuse color tint for every polygon in the level without adding materials or textures etc. This seems to be a better use of the vertex paint to me.
I've seen up to 4. Base texture, then R, B and G channels.
Also, it's not a binary, mutually exclusive matter of "which is better". Horses for courses.
If you're looking for the ability to change the coloration of the same texture across a surface, and that's all you need, vertex color is ideal.
If you're looking for having up to 3 or 4 different textures on a single object, multi-texturing is ideal.
If you want the best of both worlds, you could probably mix both together - use a splat map for the multi-texture part, and then vertex color to change the tinge. I've mixed these two in Blender, but again, not sure how that would apply to a material in T3D
A single project can use both for different things.