is it better to use hyphens between 3 word domains. I mean which is better for google. estibot seems to value domains with the hyphens more but im not sure why this is.
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Non hyphen domains are better, however at the same point I would not shy away from buying super premium .COM with one dash in. The dash has to be in a place that makes sense though.
I don't think that SE's are in favor on just one side of URL structure (with separators or none). Though some URL with compound keywords looks better with separators. IMO, the treatment is fair for all and still, the obvious factor for a better SEO result is your site's content and you're application of SEO.
I think estibot can easily see all the words in a domain with hyphens when it checks it. It can't easily do that when there are no hyphens.
From what I have seen with Google it will match a search for more than one word, if the words searched for match the words in the domain are in the same order. It won't match to the domain above if someone searches for "vps hosting" and show you "cheapvpshosting.com". Not that I have ever seen. There are too many possibilities of what the words could be inside a domain name for them to know which ones you mean. Like ProSportsExchange.com. Is that the correct words or is it ProSportSexChange.com or ProsPortSexChange.com? You can see the problem...
If you have a domain with hyphens, Google can "see" the words and do partial and reverse word order matches to your domain. This can be an advantage, BUT it's a pretty small one. Your site optimization can easily beat another sites with less SEO but a "better" domain name. Go for the domain without hyphens first, but don't feel too bad if you have to get the one with hyphens becuase it will still work for parking and development, but just not as much for selling.