It really isn't as much of a chicken/egg problem as it used to be. I have found that spending some time on a quality design and at least half a dozen pages of good content pays off. Launch, then keep more content coming.
The first thing to do is get your site map submitted so that search engines know you exist. Remember, search engines are psychic and know you exist anyway, even before a single link to your domain appears anywhere, but getting the site map in really helps to start drawing a little bit of traffic.
The next thing to do is go out and promote your web site. This means being helpful / like-able on forums, blogs, etc and taking advantage of your signature link. If you take a few minutes and actually add something to a conversation, your comments / posts will generally get approved.
A lot of blogs turn off
nofollow links (mine do) for people that leave comments that are of sufficient quality to be approved. That really helps.
You can then consider what you want to spend to speed up a process that (should) occur naturally over the next six months. If you sell stuff, yes, its a good idea to get your banners out on sites that have visitors that would like your products.
Another good example is SO advertisers. If you make a 'killer' IDE, you're just one of many. You need to get marketing in front of people that would appreciate what you offer, and you've got a 200x200 block space to convince them its indeed 'killer'.
Personally, I like being patient and waiting for the 'organic' method to work its magic prior to spending money on any kind of paid campaign, especially with social media sites being so conducive to self promotion.