Being 'nel mezzo del cammin di nostra vita' (Saint Hilda and Saint David, pray for us!), I feel it safe for me to read either. The explanation for this particular proverb I received when I first heard it was that young men are given to fighting, and the Water Margin is excited, while old men are given to deceptions, and the Three Kingdoms is full of machinations and schemes. But on reflection I think this interpretation is wrong.
Young men are given to fighting, but this is the case because they have an exaggerated idea of their prowess. Water Margin plays to this, with superhuman combatants who ultimately face few consequences for punching everyone around them. As I grow older, however, I find that I have an exaggerated idea of my own ability to lead and give advice. Three Kingdoms, being full of characters whose good advice is not heeded, colors this self-image.
I have no intention of re-reading Water Margin any time soon, so my take may be influenced by my state of mind when I last read it (angry, resentful). I am wholly unable to see why Water Margin is such a beloved classic. This is likely my deficiency, but I also feel that much of its modern cachet comes from Mao's love of it. Mao also loved communism and long walks to nowhere.
Three Kingdoms, however, gets a read more or less once a year. It's a deep, lovely book, with enough going on for even a mayfly attention like mine to be held. As a true classic, there's something that stands out new every time.
This last read, what struck me was the uselessness of Liu Bei. The ostensibly virtuous contender for the throne, he fails in everything. His only real talent is attracting and holding to him more intelligent and capable lieutenants, chief among them Zhuge Liang. And this makes him the perfect emperor in some ways--but it also makes him unfit for any other job more complicated than weaving floor mats. He would be excellent sitting on the throne, facing South; doubtless the whole kingdom would increase in virtue and prosper. But because he is himself passive and nugatory in any practical matter, he can't put himself on the throne--indeed, even the greatest warriors and strategists ever to live can't manage to overcome the obstacle of his overwhelming virtue/stupidity.
Cao Cao, on the other hand, is quite capable of becoming emperor. He's such an attractive figure that I used to entertain the idea that he was the secret hero of the Three Kingdoms. This was an illusion, much like the appeal of Milton's Satan. Cao Cao makes things happen. He is smart, cunning, fearless, and strong. He is able to gather around him great warriors and tacticians. He also would make a terrible emperor, as is seen most clearly when he reveals his plan to steal Zhou Yu's wife.
The scene is preceded by Zhuge Liang approaching Zhou Yu to convince him to ally with Liu Bei. Zhuge Liang fails until he mentions that Cao Cao, if successful, will steal Zhou Yu's beautiful wife. Zhou Yu flies into a rage and convinces his lord that they must join with Liu Bei to defeat Cao Cao. The result: the Battle of Red Cliffs, and Zhou Yu's death of exasperation at Zhuge Liang's genius. His last words were (and I would be lying if I said I had never felt this way myself), "O Heaven! After making me, why did you make Zhuge Liang?"
Anyway! Reading this scene for the first time, I believed that Zhuge Liang was lying. But we are later shown Cao Cao carousing with his generals, and boasting about the tower he will build in which to keep Zhou Yu's wife. This is a man who, if he had become emperor, would have committed not Seven Impieties*, but seventy times seven.
And so the contrast between Cao Cao and Liu Bei is not just who the better man is, but who is better for the country. Cao Cao exceeds Liu Bei in almost every area. But if rulership goes to the best man, there will be no stability, since the only way to prove that is in disordered conflict. See also: Achilleus, sulking of; Agamemnon, Chryseis, stealing of. Also most high schools.
Liu Bei represents the legitimate government, which is why his relation to the emperor is stressed. The young emperor goes so far as to call him 'Uncle'--a clear callback to the early insistence of the chief eunuch that the emperor call him 'Daddy'. One is a corruption and an absurdity; the other is drawing a clear link between the current ruler and the man who should rule next. But because his virtues are only manifest in one role--emperor, which he isn't and never really becomes--Liu Bei remains ineffectual.
Cao Cao can get the throne but can't rule properly, and Liu Bei could rule but can't get the throne. The empire fights until it splits under this tension, and only after this final dissolution can a new, legitimate** dynasty arise.
*Of Cao Cao's Seven Impieties, I can only remember two offhand: incest and grave robbing. Google hath failed.
**No. Fuck you, Sima Yi.
***I have left out the kingdom of Sun Wu, who are anyway my favorites, both because they would complicate my neat dichotomy and because they are really only in the story to be a foil to Cao Wei and Shu Han.