I really don't like either way you've described. The best way that I have found to set a post is to fill the hole with concrete to within 4-5" from the top, then install dirt up to the top. This prevents freezing water from getting in under the concrete and raising it out of the ground. Here's a link that will show you all the details of not only how to set the post but how to install your fence. Hope this helps.
http://www.hooverfence.com/manual/ch...k/install3.htm