The following quotes indicate that it IS in fact a choice to level up by Hit Dice Type or by Class level, assuming that the prerequisites are met for the latter:
- "A creature’s Hit Dice total is also treated as its level....",
- "Often, intelligent creatures advance by gaining a level in a character class instead of just gaining a new Hit Die",
- "...options for altering standard monsters other than adding character classes or using the monster advancement...",
- "You must advance a monster by type if it lacks the Intelligence score to gain class levels (minimum 3).",
- "It gains an ability score increase for every four additional HD; it gains a new feat for every three additional HD; and it gains skill points for each additional HD."
- "In general, it is most advantageous for a 1 Hit Die creature with a +0 level adjustment to abandon its monster Hit Die and take class levels." ... "On the other hand, you may wish to keep that one monster Hit Die."
These quotes come from the Monster Manual 1 and Savage Species.
This question was also raised when dragons were converted to a PC playable race. The following are supporting quotes from the Draconomicon dealing with the problem of aging (and thus gaining Hit Dice + dragon abilities) versus leveling up with class levels, and how to choose:
Advancement and Aging
- As it ages, as shown on Table 3–21: Aging for Dragon PCs,
the dragon is required to devote a level every few years to its
dragon “class,” reflecting the extra Hit Die or level adjustment
it gains from aging. The character must add this
dragon level as the first level it gains after reaching an age
shown on the table. It gains no benefit from reaching a new
age category until it attains this level.
- A dragon PC begins at a specified age (in accordance with the current party level in the campaign) and gains character levels as the player wishes
over the course of its adventures.
- Once in a while, a dragon character must advance a dragon level without gaining a Hit Die, base attack bonus or save bonus increase, or any other tangible benefit. These levels are indicated on Table 3–21 by asterisks in the “Age in Years” column: When the dragon reaches the specified age, the next level the character attains must be used to advance its dragon level. When this occurs, its level adjustment increases (and its ECL rises accordingly) but the character receives no other benefits.
These “extraneous levels” smooth the transitions between age categories, which are often accompanied by an increase in level adjustment to account for changes in size, ability scores, and other characteristics. In most cases on Table 3–21, a dragon PC that is close to reaching a new age category has a higher level adjustment than is specified for its age category and kind in the Monster Manual. This method of transitioning between age categories ensures that a dragon PC does not make rapid jumps in power out of proportion to its ECL by reaching a new age category and gaining the benefits of as many as three effective character levels at once....
This method presents a balanced approach based on the expectation of gaining more than one character level over the course of an in-game year of time. While the specific guidance is intended for dragons-as-player-characters, the concepts presented are excellent overall guidance-of-intent on choosing between advancing Hit Dice by type and advancing by class level when leveling up a character.