Question
Who does the Mahabharata call the “best of men”, Nara or Narayana?
Answer
The root words (namas) to consider here are nārāyaṇa, nara, devī and sarasvatī. All of them are used in the above verse in dvitiya(second case) serving as an object or as a qualifier to an existing object. Devīm is the qualifier for sarasvatīm. Now narottamam in the above case is applied to nara as a qualifier. I don't think it is a translation error while philosophical reasoning may differ.
Now, because of your great question I looked up previous acaryas commentaries. Indeed Srila Visvanatha Cakravarti Thakura (VCT), commenting on verse 1.2.4 of Srimad Bhagavatam (that is exactly same as this but one word differs in some editions and VCT addresses this below), says narottamam means Lord Sri Krishna. The Sankrit scanned copy of VCT and other commentaries is available here
One translation of VCT commentary (Sarartha-darsini) into English is done by Bhanu Swami (only hard copies available) and what I type below is from his book. So VCT says:
Having offered respects to guru, SUta offers respects to devatA, presiding deity, etc. Nara-nArAyaNa are designated as the presiding deities of this work since they have authority over the place. The devatA or subject of the BhAgavatam is KRSNa (narottamam). SarasvatI is the Shakti. The word ca indicates the RShi (sage) of the work, VyAsa. Some editions have the word vyAsam instead of caiva. That makes the meaning clear.
So, according to VCT, it seems Narayana and Nara refer to the presiding deities in Badikasrama where Vyasa first compiled Bhagavatam. Narottamam refers to Krishna and Devim to Sarasvati.
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