Most soundtracks are ultimately a mix of both, since there's rarely the time or the money to record every single effect needed, while re-using the same library tracks can make the project feel stale and repetitive.
But what about the indie folks, with limited budgets and schedules? One option that is free is The Freesound Project, an online database where you can download user-produced sound effects and music samples, all under a Creative Commons license.
The Freesound Project aims to create a huge collaborative database of audio snippets, samples, recordings, bleeps, ... released under the Creative Commons Sampling Plus License. The Freesound Project provides new and interesting ways of accessing these samples, allowing users to
* browse the sounds in new ways using keywords, a "sounds-like" type of browsing and more
* up and download sounds to and from the database, under the same creative commons license
The project was started by the Music Technology Group at the Pompeu Fabra University in Barcelona, Spain in 2005.
I can tell you that I've used it and I highly recommend it. It's certainly no substitute for a professionally recorded commercial library, but the effects and samples are of very good quality and the search engine is one of the better I've used.
According to the license, you are allowed to use the tracks in any way you see fit, at no charge, so long as you identify the source. In this day and age of the RIAA suing grandmothers for "piracy", this kind of respectful openness is appreciated.
Link to the Freesound Project. For more about Creative Commons, go here.