Which one is better and why ?
Which RS4? The B5 based (Biturbo engine) or the B7 based version (V8 engine)? Actually, it doesn't really matter. Either one will out run the E46 M3 from the performance stand point. However, M3 is more pure around the track, maybe a little more fun to toss around the corner but not as usable year round as the Audi (Especially if you live in the snowbelt).
The magazine reviews seem to favor the RS4 over the current M3....no wonder with the RS4 pricing out at around $70K vs $50K or so for the M3!! From a pure price standpoint, the standard S4 is a better comparison against the M. Will be interesting to see how the RS4 stacks up to the new M3...
I would have to say to go with the M3. Even the newer Audis are just to front heavy for me. The M3 is just a more balanced all around car for me. And with the money you save a few Dinan or such upgrades will get you a little more power.
For the first time in the history of sedan comparisons, my vote goes against the current bimmer. The new M3 is going to have to be pretty good to dethrone a 4-door with AWD and over 400 HP.