I was wondering since in Ubuntu 10.10 I have the ability to create both xz and lzma archives. Should I switch to xz?
This benchmark provides some good information about this issue. It seems that LZMA has slightly better compression ratios and performance than XZ but XZ is generally preferred due to 'practical reasons' (I'm not sure what these are).
XZ is an implementation of the lzma2 algorithm and is better at compressing 'uncompressable' data:
You should be OK using either.
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I disagree with @dv3500ea's conclusion, "OK using either", as it was inappropriate. Even at the posted date/time, .lzma files were known to be replaced completely by .xz. The author of both Utils has said publicly, users should transition to XZ-Utils ≥ 5.00. The last LZMA-Utils release was 2008-07-30, at posted date/time years old.
The determining factor might not be compression, although ironically it was for this example. "practical reasons" are a self-evident, and significant, reason to use XZ-Utils. Additionally the .xz format allows you to specify compression algorithms, and filters, so .xz files can use either LZMA or LZMA2. Avoid creating new .lzma files, they are considered a legacy format.
As for even keeping LZMA-Utils around, don't, XZ-Utils has support for legacy .lzma files. It also has wrappers for scripts still using LZMA-Utils. If all those reasons were still insufficient, Ubuntu dropped legacy lzma-utils from its repository.