Hi,
L2TPv3 works over IP network and MPLS PW requires MPLS network.
Both are similar in the kind of services it provides including interworking (where both side of attachment circuit can be of different layer2 protocol), QoS.
L2TPv3 requires higher MTU size throughout the path over IP network else we can confiugre the ingress router to fragment the packets.
For MPLS PW, we have to configure MPLS MTU to higher value throughout the path. Moreover some recent images of Cisco requires the L2 MTU to be increased throughout the path (not supporting mpls mtu).
MPLS PW requires targeted LDP between PE routers, encapsulation is done by the MPLS label and for L2TPv3 encapsulation is done by the IP packet L2TPv3 headers.
If your network is MPLS enabled, MPLS PW can be the best choice but not all Cisco platforms are not supporting.
But L2TPv3 is supported in most of the platforms of Cisco. ( as for i ve tested from C1841 onwards)
Hope this helps..
thanks
Arun