This is the situation I'm in. Is a little bit of bearing play a legitimate option? Will my bearings wear down more quickly if they are slightly binding or if they are slightly loose?

Lm67048 bearing dimensionspdf

For proper adjustment, the Park tool website has good instructions: http://www.parktool.com/blog/repair-help/hub-overhaul-and-adjustment

If nothing you can do will eliminate both the binding and the play at the same time, it is better to adjust a little loose and accept a slight amount of play then to have the hub bind

LM67010bearing dimensions

I just overhauled some cheap bmx hubs. I installed new bearings and cones. Now I'm trying to get the hubs adjusted so that the bearings will last as long as possible.

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A bearing that is adjusted too tight can actually seize completely. This happened to me once. I overhauled my front hub and tightened the bearing cones too much. Result: a front wheel that plain stopped turning at some point.

I had always thought that leaving bearings even a tiny bit loose (be it bb, pedal, or hub) was one of the cardinal sins when it came to maintaining a bike. But reading this from Sheldon Brown put that in question:

LM11949bearing Dimensions

Lm67048 bearing dimensionschart

One thing to keep in mind is that a hub that feels a tiny bit loose when out of the bike will likely have no play once you put it in the frame/fork. The clamping force on the axle nuts will tighten things up, removing the excess play.

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Years ago the weight weenie road racers used tae leave out a bearing in each hub, saving mebbe 100/150gms on bike weight. They never had problems! pack in more grease.

Too tight adjustment will exert more pressure on the cones and cups, and will probably wear out the bearings faster than too loose an adjustment.