I don't know that he ever said which version he preferred. I'm tempted to say that he preferred the 1976 version, since he only re-cut the film after the extremely poor audience responses (at least, according to Al Ruban...I'll let you debate the reliability of that particular source). I've read elsewhere that the editing process for the 1976 version was "rushed", which I find to be surprising since there is some brilliant editing work in that film, so perhaps he preferred the 1978 version, since he had more time to re-edit the film. Given the audience response to the 1976 version, though, I can't help thinking that the reception had a lot to do with how the film was re-edited.
As for which version to watch...the first time that I watched it, I made sure to watch the 135-minute version, and I think it is an incredible film, despite the fact that I think that a few segments are extraneous. In fact, in that version, I'd have to say that it is one of my favorite films.
Because of that, I've had a lot of difficulty warming up to the '78 version (it is like Bookie-light to me). In my opinion, it tightened up the film in the wrong ways, and cut out some great moments in the process. Still, there are several segments in the 1978 version that you don't get in the '76 cut (and vice versa, of course), so it is worth seeing if just for those segments, most of which are in the first half. Plus, you do get more of Timothy Carey's performance in the '78 version...but you lose one of his most memorable scenes as well.
There's a thread somewhere on IMDB that deals with both Bookies, and you should read that as well.
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