That's one ugly debate you're entering into. Short answer is, parameterized queries function the same way as stored procedures. SQL Server will be able to reuse execution plans because it will recognized the parameters as such. So from the performance point of view, there's no real difference.

The difference comes from code maintenance, maintainability, and performance tuning. In order to tune a single line of code requires a complete deployment of that code. If you're in a tiny little shop with a couple of developers and you're going straight to production with every successful build, who cares. If you're in a larger shop or dealing with more sensitive applications, you'll need to go through QA, acceptance testing, financial testing, etc., for every change to a line of code. Where as, with proper configuration and testing, you can adjust the internals of a stored procedure without changing it's interface and deploy it without affecting the client or app code. Huge difference. I'd go for those parts of the argument rather than strictly over performance.