Small loan or small down payment increase?

A while back I posted a question to Yahoo Questions:

How do I handle a small outstanding loan (payable in full immediately) while preparing to purchase first home?

I have a few thousand dollars of outstanding college loans and am looking into purchasing my first home this summer. I could easily pay off the loan with savings, but that would eat into my fairly pathetic down payment. I just read that paying off debts helps your credit score, which is why I am asking. Until now I was trying to maximize my down payment.

The response was mixed, although slightly leaning toward using the money toward the down payment.