I like all the feedback so far, I just spoke to my mechanic who also said he would never drop that kind of $ on an E39, no matter what mods it has. I should have mentioned I also already have an E34 Dinan/stroker M5, he didn't understand having both.
I guess I really liked the idea of the S3, because it is so unique...but I am slowly being talked out of it.
BTW, my mechanic said if I was going to "trade" in the $45k range, he would be looking at a 911 TT, and I can still drive the kids around in the E34, or the SUV.
Before making any decisions it sounds like I should review the "mods" section and see what tempts me...especially to get more torque out of the E92 (I don't have $20k+ to drop into SC or stroking the M3...which I assume is what it must cost)...also isn't it hard to pass smog in CA with the SC (not impossible I understand, but it will take some effort).