Just to chime in with my POD experience:
I vanity POD published* a novel that I believed had a niche market (it was a literary sequel). I got the most basic package because I believe that vanity POD publishers do not in reality do much of anything useful for you on the promotional end--even if you pay for it. I managed to sell over 1,300 copies of my book, primarily by word-of-mouth. I did receive three positive reviews on POD blogs and internet newsletters, and I wrote an article that mentioned my book. Beyond this, I did very little promotion for my book, and the publisher of course did none. I think it sold so well because there is a niche market for this type of novel, and of the other novels already available in this genre, only a very few are well written.
In short, the experience was, overall, positive for me--although I did have some initial problems with my publisher, and in the beginning I had to stay on top of things to make sure I was getting the royalties owed me on time. After several months, things smoothed out and I was paid in a timely manner, and I have profited from my novel. Now that my two year contract is expiring, however, I have chosen not to renew it. I could probably continue to steadily sell about 40 books a month, and with my POD publisher, the per-copy royalties are actually higher than with most traditional publishers. But I know my book will never be in bookstores, and my sales will likely dwindle rather than grow, because I will never receive any real promotion from my vanity POD publisher.
I will likely bring out a new, edited, and slightly revised edition of my novel under a more traditional contract with a small press publisher instead. I think I have a good chance of that happening now, but I don't think it would have happened if I had not vanity POD published in the first place, because I found it difficult to convince publishers that this niche market really did exist and that my book would be well received by that market. Seeing a POD novel w/ no promotion that is available in no physcial bookstore still managing to sell over 1,000 copies helps to convince some publishers there is a market after all.
But this is just one experience. Most people I know who have POD published fiction have sold to friends and family, and that's about it. Unless you have a real niche, you aren't likely to profit. If you do choose to vanity POD publish, my recommendation would be--keep it simple. Choose the cheapest package (provided it at least includes an ISBN, a cover, order fulfillment, and listings on the major online retailers). The bells and whistles aren't going to pay off. Promotional packages and paying big bucks for returns isn't going to change the fact that bricks and mortar stores simply aren't going to sell a vanity published POD novel.
As for POD publishing vs. self-publishing: I chose to POD publish because: (1) I didn't want to risk a large amount of money up front on self-publishing in case I was wrong about the market and, more importantly, (2) I didn't want to do all of the work self-publishing required. I didn't want to apply for my own ISBN, warehouse and ship my own books, obtain my own listings on Amazon and BN, etc. And I didn't want to take the time to learn how to do it all. I wanted to write, not to publish. Would I have made more profit if I had self-published? Yes, probably twice as much in whole dollars. However, given the amount of time I would have to put in, and given my usual hourly rate, in the end, I would have made less in real terms.
* When I say "vanity POD publish" I mean pay a POD publisher a fee to publish your book. There are publishers who use POD technology but operate on a traditional model--i.e. they are selective, they pay you an advance and you pay them nothing, the books are returnable, the books are discounted, and the publisher does the marketing/promotion.
