I would imagine time.sleep() will have less overhead on the system. Using pass will cause the loop to immediately re-evaluate and peg the CPU, whereas using time.sleep will allow the execution to be temporarily suspended.
EDIT: just to prove the point, if you launch the python interpreter and run this:
>>> while True:
... pass
...
You can watch Python start eating up 90-100% CPU instantly, versus:
>>> import time
>>> while True:
... time.sleep(1)
...
Which barely even registers on the Activity Monitor (using OS X here but it should be the same for every platform).