The latter, I find that with 1Ghz phones you can usually safely overclock without worry to 1.2-1.4Ghz with an undervolted kernel.
Remember they only run at that speed when they need to, if you play around with the SetCPU governers till you find one that gives you a good balance between performance and battery life you should be good to go
Also look at setting up a "Screen off" profile where the max CPU is something like 600Mhz or so so that you extend battery life even more when the screen is not on and the phone decided to do some sort of update fart