the 2nd gen had t-vis while the 3rd gen didnt. also the intake and exhaust ports in the 3rd gen where wider. and yes parts will work one the 3rd gen from the second gen.
I have a 3rd gen R/c and I use 5th gen alltrac parts all the time on it, granted some of the stuff you can't use but most of it is interchangeable.
to answer the original question it depends on what you want to do with the motor.
If you looking for alot of power but dont want to do alot of after market stuff then get the 3rd gen and just swap it in.
if you looking for alot alot of power then get the 2nd gen and work on increasing boost - that T-vis is AWESOME
If you looking to break landspeed records then get the 3rd gen and max that Bish to hell with aftermarket stuff >

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This post has been edited by NEVERSTOP: Apr 18, 2003 - 11:20 PM