I think both were terrible battles that cost huge numbers of men and material.
But think about this--in those 876 days (almost a three year siege), the amount of men tied down in the defensive battles around the city are almost as great as those numbers destroyed in Stalingrad. If Germany had sacked the city, then in all likelihood Finland would be more willing to elicite its support for further drives against the U.S.S.R. Moreover, during the siege of Stalingrad a key factor - the German forces in the Crimea after Sevastopol's fall were instead of brought up to guard the flanks and help push for the drive for the Caucuses were diverted in fighting around Leningrad and Lake Ladoga.
Stalingrad was a huge defeat, but if Leningrad had fallen with a massive siege during the initial advances in 1941, all those forces tied down in wouldve been available for other would-be offensives and it wouldve strengthened Finland's ties with Germany to an even greater extent.
To anwser the question--Leningrad, but this is not in terms of demoralization.
