The band combination for land use and land cover classification depends on the user. It is user specific, which band combination gives comfort to user in sample selection of objects. It is strongly relies on the user. The band combination of Landsat 5 TM is 4-3-2 (False Color Composite) and 3-2-1 (True Color) where 4 is the NIR (Near Infrared) band and others represents visible spectrum of EMS (Electromagnetic Spectrum). Landsat 8 OLI has band combination of 5-4-3 (FCC) and 4-3-2 (TC) where 5 is the NIR band.
For watershed management the spectral resolution is used in different purposes. So, please specify your needs.
The first question is for what goal do you want to manage your watershed(s). Optimising water yield, reducing erosion or a combination. Cover types may vary in their impact on each of the goals. After setting the management goals you could select the relevant cover types (e.g. seasonal ground cover & woody species height for erosion control) .
"Use" can not be detected by RS, only cover. Some cover classes/objects maybe proxies for use.
Maybe you should consider to apply image classifications of the usual suspects (Landsat bands) unsupervised or supervised if you have ground truth, Or alternatively, you may consider an object-oriented image classification without deciding on bands up front.
Yes both Landuse and Landcover classifications could be done using Landsat-8 & Landsat-5. Because each Landsat image has specific band combination for some particular object, Go for Hybrid classification for better results.Best of luck.