Kitchen towel vs dough seal in a dum biryani
I have used both methods. I don't really know why but the one cooked with dough tasted bit better than kitchen towel method for me.  

I believe it was because the container was sealed very well and no room for air to escape. The meat is cooked to perfection too.  

You are right the towel absorbs moisture which may even dry out the rice and meat so moisture is important for slow cooking.