Domain Accounts are generally preferred over the Local Service for a variety
of reasons.

Ensure that the Domain Account that you choose however only has the security
levels it needs to perform its duties.  You will also need to ensure that
the domain account has log on as a service right.  For example, a Domain
Admin account is not a good choice.   A domain account that is a local admin
on that server however may be a better choice.

There are a host of other security concerns.  Check the BOL on that.

Rick Sawtell

Local System account has extensive privileges on the computer. So if may want
to assign the same privileges to the domain account on that computer. See
http://msdn.microsoft.com/en-us/library/ms684190(VS.85).aspx for the list of
privileges. Personally, if the privileges of the Local System account are
required when a domain account is used, I'd simply put that domain account in
the local admin group. This may raise some eyebrows from a security point of
view, but can simplify support--a trade off I'd make and you may want to
consider.

Linchi

Ensure that Domain Account does not expire and disable and locked. Otherwise
your SQL Server may stop one day unexpectedly...