Hi AP,
It's probably six of one and half a dozen of the other. But I prefer to add the dry spices to the oil (often after adding chicken/meat, garlic and ginger), off heat, stir, then back onto the heat and immediately add some tomato puree (or a little curry base or other liquid media).
I take your point about the powders absorbing the oil. I simply use lots of oil to counteract this (and spoon it off, at the end of cooking, if necessary).
However, it seems to me that there is a spectrum of views on how to cook the powdered spices:
1. Add them, to the oil, at the very start of the cooking process (and risk burning them)
2. Add them after other solids (e.g. onions, garlic, ginger, meat, etc) have been added (to minimise the risk of burning them)
3. Make a paste of them (e.g. in water, oil, tomato puree, etc) before adding them (to prevent them from burning)
4. Add them after other liquids (e.g. tomato puree, curry base, etc) have been added (a sure fire way of avoiding burning them, but would this really maximise their flavour?)