A couple of things that come to mind:
A derived sketch has the advantage of being able to be positioned and moved around. It can also be on a plane that's at an angle to the original sketch, and the derived sketch won't be skewed. However, with the convert entities method, you can pick and choose what sketch segments to convert if for some reason you didn't need the entire sketch.
So, I guess to answer which one I think is "better"...it depends. I've used both, depending on what specifically I need it to do.
I have the same question. It seems to me that that the derived sketch should have advantages... however the inability to derive from more than one context is often infuriating, astpcially when I've followed the advice of moving parts into assemblies.
It seems like SW has goe to lengths to *prevent* the creations of unified designs.
You can allow parts to use references from multiple assemblies. Under Tools/Options/System Options/External References, check the box for "Allow multiple contexts for parts when editing in assembly". It is off by default.