I think both web hosting directories and search engines, like google, are used by people looking for web hosting.

Yes, most of the visible webhosting companies listed in a hosting directory are paid advertisers. I think many people cross reference what they see in directories with the results of search engines.

After all, if a host is paying for advertising they have the budget to spend so they are more likely to be at a stage in business where they have been in business for a while and should have a fair number of customers to sustain them to stay in business.