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The LSD in the M3 is one of the main reasons why I love this car, and a major factor in any M car. When you are accelerating out of a corner, the power will transfer to the outside wheel to prevent the inside wheel from spinning. It will also help rotate the car during cornering, kind of a steer with the throttle effect. On top of that, when you toss the car into a slide, the LSD will give you angles and control (precision) while sliding the car that an open diff can't match.
I have owned cars with "viscous" LSDs and they are absolute rubbish, they don't lock fully and tend to never work. The M diff on the other hand always kicks in and tends to split the power beautifully.
Upgrading the M's differential won't be a worthwhile mod since BMW spent a lot of time on this particular differential and to be completely honest, M diffs are the best in the business from what I have tested. Improving your driving will improve your times far more than upgrading the diff in the M3. Just my two cents.
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