They're both similar to Pandora. I personally prefer Slacker and I pay for it. With the free version, you'll hear some ads and can only skip a certain amount of songs in a timeframe (I think Pandora is the same way). There's settings that let you adjust how deep the tracks go in an album (for example, only play well-known songs, or go deeper in an album).
I haven't tried Last.FM on WP7, I didn't even realize there was a client for it. On Android, it would Scrobble songs as you play them in your regular music player. This means that you don't have to search for songs you like to add them to a playlist. Instead, Last.FM would monitor songs you play in your music player, then automatically submit them to be added as favorites on Last.FM. I liked this feature quite a bit.
Hopefully Slacker will enable station caching on WP7 though. This was the big reason I paid for it on Android. This would let you cache a station so you could listen to it offline with no network connectivity. You can't do that on WP7 yet.