Sinkhole is meant to discover infected hosts when the only thing the firewall sees is queries sourced from an internal DNS server. (Internal DNS server obscuring real source IP's of hosts querying for malicious domains). The idea is that infected hosts may carry out a subsequent connection after resolving a malicious domain, and these will initiate new traffic to the *sinkhole ip* - therefore you would use the traffic logs to see which hosts are attempting to initiate traffic to the *sinkhole ip* (and discover which hosts are infected).
If that's not your topology, then it's better to block.
By the way, you can also set an EDL of type Domain to action 'sinkhole' in the Anti-Spyware profile.
It is my understanding that you cannot use a "Domain" type EDL in a security policy as there is no way to select it. Domain type EDL's only show up in anti-spyware DNS Signature settings. Upon double checking all the lists that are available on the link I provided earlier, I do see an IP list, which can be used in a security policy; so you can directly block that way in addition to sinkholing.
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