Of the two the Paid/closed in full will be the best notation for the situation. Even when you settle for less than the amount owed, it is still a discharged colection so it won't effect your score. However anyone eyeballing yoour report such as a mortgage lender may actually require you pay the remaining balance or have hte status updated to paid/closed before they will touch you. Can also give you heck for those credit cards that 'need further review'.
Be glad for the paid closed notation.