Should I put the error handler inside the loop, or the loop inside the error handler?
Error handling should be (IMO) for the whole stored procedure: so loop inside the TRY/CATCH

Not least, what happens when more code is added pre- or post-loop?
Then you need the TRY/CATCH to cover both loop and new code.

Poor maintainability and extra work required.

You can have an inner TRY/CATCH if you want to handle certain inner errors: this is acceptable for, say, "UPSERT" calls (before SQL Server 2008 MERGE of course). See Pros and Cons of Checking if value exist for unique column or let db raise unique error on inserting for more