I think it is important to pay attention to hands that you are not involved in, but it can also be hard. It is especially hard when playing online (or even playing multiple tables at once). You can't really get a feeling about your opponents' playing style and find their weaknesses if you don't pay attention to hands you are not involved in. For example, you may find that one of your opponents always raises a flush draw on the flop etc.

I personally find it is easier to pay attention when playing live games because (i) there are less distractions and (ii) I enjoy looking for 'tells' which you don't get playing online.