Rolling resistence has something to do with it, tread has something else. When my old 700x38s wore out I got a set of Panaracer Pasela 700x35 tires and the difference is quite remarkable. The smaller tires can hold more pressure and provide for lower rolling resistence.
As with what I'd put on there, I'd definitely go with 700x35 tires if you're riding on roads (that's all I ride on). I can handle gravel and sand okay but don't recommend it. If you're going to be commuting or riding on busier streets where speed is restricted I'd put the 38s on there. If you're planning on doing off-roading with the bike, put some medium-sized cyclocross tires on there.
