The way it's supposed to work: organizational informants
The strongest arguments for informant use are connected to the nature of criminal organizations: informants permit the government to get information about, infiltrate, and destabilize group criminal activity. The most famously effective such deployment was the FBI's use of informants to go after the mafia, a success story that is often invoked in support of informant use more generally. Of course even that success story had its costs: see this post on the dangers of mafia informants.
These tactics are now on display in several recent cases regarding insider trading and computer hacking, in which the use of informants has not only permitted prosecution of individual wrongdoers but may be weakening the culture of collective wrongdoing itself. According to this Reuters report, "[t]he FBI says it has enough informants lined up to keep its investigations of suspected illegal insider trading at hedge funds going for at least five more years." The New York Times opines that the conversion of a leading hacker into an informant "will sow even more distrust and dissension in the ranks of [the international hacker movement]." In both communities, the knowledge that colleagues and peers may be informants could well chill criminal activity. At the same time, the government should be careful not to send the message that becoming an informant is a get-out-of-jail-free card, a double-message that could undermine deterrence. See this post.