IMO, you make the decision on a case by case basis. First, judges accept more "fill" than they did a few years ago. They are no longer looking for that tight gutted look. Second, some shows require that lambs have water available at all times, and some prohibit drenching. Also, some lambs refuse to drink strange/city water. So these are all things to consider.
Aside from this, you have to look at the individual lamb. If the lamb tanks up on water after eating and gets a big belly, then limiting his consumption may be helpful. If he bellies up after eating then a drench can give him energy if need to cut back his feed at a show.
Myself (and I am not as experienced at the show aspect as some others, so anyone is welcome to disagree), I start adding electrolytes to the lambs' water about four or five days before the show so they get used to it. Then I continue at the show, so the electrolytes hide the taste of the different water and to keep them hydrated. Then the morning of the show I may restrict water and drench if they need it based on appearance.
