I know the core AD&D 1E rules backward and forward, probably better than anyone else in my play group (definitely better than the 1E newbies, probably better than most/all of the 1E veterans too). This isn't intentional "rules lawyering," it's just a natural consequence of having a good memory for this kind of trivia and having played the game off-and-on for 20+ years (more than 2/3 the total amount of time I've been alive!).
As a DM it's nice that I know the rules better than the players, because it leads them to trust my judgment and rarely question my rulings (because when they do -- usually about the specific effects of a spell, magic item, or class/race ability -- the rules almost always back me up). This is freeing because, ironically, it actually lets me get away with following the rules less strictly -- in the heat of play I don't often think about how something works in the RAW, I think about what makes sense in the specific context and matches the spirit (if not necessarily the letter) of the rules and go with that. I'm able to get away with doing this because I don't have players constantly second-guessing me and don't feel the need to "justify" my decisions. Sometimes my ruling is probably harsher that what a strict reading of the RAW would say, sometimes it's more generous -- in the end I suspect it all balances out pretty much even.
As a player (which is what I've been for most of the last 18 months) it's a little tougher, because 1) I as a player know much more than my character "should" (about the stats and special abilities of monsters, mostly), and 2) I can tell whenever the DM deviates from the RAW. My approach is usually to keep quiet about both of these. In combat I won't typically have my character make deliberately "bad" decisions (attacking a gargoyle with non-magical weapon, casting a sleep spell at a monster I know has more than 4 HD, etc.), but I also won't speak up to stop the other players from doing so -- I don't want to spoil the fun of discovery for the newbie players by, for instance, telling them to use fire against a troll before they've had a chance to see its regeneration power in action (I suppose this is a DM-ly sort of attitude, and in this regard I'm running my character like a semi-NPC -- in a group of all-veteran players where it was expected everyone else knew the rules as well as I do I'd probably approach things a bit more pro-actively (I'm a firm non-believer in separating "player knowledge" from "character knowledge," but I am a believer in not crapping on the other players' enjoyment of the game...)).
With other rules-stuff I take the attitude that anything the DM is changing deliberately is his prerogative as DM and I won't argue with him (even if I would have done it differently were I in his chair). Things that I think the DM is getting "wrong" unintentionally (misreading or forgetting a rule) I'll let slide too, unless it comes up naturally (which it occasionally does -- the DM will sometimes ask "am I handling this right?" in which case I'll tell him if he's not). Yeah I could be a real pain in the DM's ass about rules-stuff, but I choose not to because doing so wouldn't make the game any more fun for me or for anyone else either. Yeah I sometimes wish that the DM either knew the rules a bit better or just chose to follow them a bit more closely, but as a player I don't consider it my place to make a stink over it, I just make a mental note that when it's my turn in the DM chair I'll try to do things differently.
It's perhaps worth emphasizing that since the game in question is 1E AD&D, all of these "rules issues" really only center around a pretty narrow range of areas -- combat, spell and magic item effects, and class/race abilities, mostly. For everything else I'm perfectly happy having the DM ad hoc something without either one of us having any "rules" to fall back on. When I'm a player and I want my character to do something not covered by "the rules" I'm much happier having him make something up and tell me the result than expect me (the player) to know the rules covering it. Likewise when I'm DM and a player comes up with something not covered by the rules I'm happier having the freedom to make something up that feels appropriate than to have the player have some predetermined expectation for how it should be resolved that might not jive with my intentions.
That's one of the big reasons I prefer 1E over 3E, as both player and DM -- as a player I don't want the burden of being expected to know the rules (I want that to be the DM's job), and as a DM I don't want the spectre of the player's rules expectations hanging over my head (I want the freedom to make stuff up on the spot without second-guessing). I'm sure neither of these is impossible to achieve in 3E if the other parties (DM in the one case, players in the other) are sympathetic, but in my experience it's been easier to achieve in 1E. IMO, YMMV, etc.