I would use a more coarse grain sand and keep the flow kind of high to keep fish poop in suspension. It doesn't matter if it's dead or "alive", just seed the sandbed with a few cups of sand from an established tank.
In a fowlr tank you can do either. If you're planning to get some fish that eat pods and such, it might benefit you to use live sand. It'll add more diversity to the tank. However with a FO setup it's not critical. Your LR will eventually seed your sandbed anyway.