There's some debate about this- now that amp/speaker modelling is so advanced, you can get a great electric guitar sound directly....but there a lot of people who maintain that it's still no substitute for a 'real' speaker sound. If possible, I like to go for a mix of the two...but I have no complaints about the sound of my POD. Plus, I'm too cheap to buy all those amps anyway. 
I'm more in favor of using mics on acoustic instruments; I'd rather hear an acoustic guitar recorded with a mic than one of those horrible electric-acoustics. I can understand using them on stage, when there's feedback concerns, but I never liked that bitter piezo sound.