The Terror Dart. Always the Terror Dart. Probably 80% of my game was Path of Nightmares and the Terror Dart.
The thing about the Terror Dart is that it works against all enemies, including the late-game enemies that have multiple detection abilities. Some lethal gear requires that the enemy move first, which is not always ideal. Some of the other lethal gear only stuns and doesn't kill strong enemies, which means that you've still got to move in for the kill.
The dart also takes care of a whole set of enemies at once, by causing panic and fear when they see the effects. Enemies will freak out, walk off ledges, shoot their allies, and so forth.
With Path of Nightmares, bodies you leave behind don't trigger alerts, they trigger panic instead. This can be extremely powerful against groups and in spots where you've got to hold out until time runs out.
I didn't find the distraction items to be that useful. The vast majority of the time, it's possible to get behind enemies and take them out with the sword. If you distract them, they become slightly more unpredictable in their behaviors, and they're still alive. With the dart, if you're in a sticky situation, death is guaranteed.
If you find you need a distraction, the bamboo dart that you start with (and have an infinite supply of) will attract attention to your current location. You can set enemies up to fail by standing near a trap trigger and throwing a dart at them. They'll come over to investigate and run afoul of the trap.
There's also a late-game outfit that requires you to leave behind distraction items. This outfit is required for certain missions. Therefore, if you invest heavily in distraction items, you're going to be out of luck when these missions roll around.