Arm capture for this round. A direct docking may be an option for later flights, and is planned for manned flights.

What are the advantages/disadvantages of each method?

Less risk with an arm capture.

With an arm capture they manoeuvre the craft a safe distance from the ISS then check it can hold position and move slowly toward/away. When they're satisfied then they edge it close enough to capture with the arm.

If it docks itself then you have to trust there won't be some weird last-minute f*ckup causing it to crash into the station.

So why not always do an arm capture?

One way of answering your question is that the ISS already has automated resupply missions: http://en.wikipedia.org/wiki/Automated_Transfer_Vehicle

Secondarily, the limited time & manpower on the station makes streamlining a resupply mission good sense - as long as there aren't huge risks.