I just swapped to a 3.73 medium case. It's heavier, bulkier and cumbersome. I'd go for it, the install isn't too bad. Fits perfectly and I'd suspect it's more durable. Also see if the diff ear bushing is OK. My 325IS had a solid bushing that was in great shape - the old webbed 318i diff bush was cracked and weak.
It's also good to have a helper do gear & brake while you're under the car. I made three observations when I put it in:
1. Easier to fill it with gear oil out of the car, just put a little block of wood under the input shaft to level it a little.
2. The driveshaft studs are sometimes misaligned. Pound them into the driveshaft and then just tighten them really good afterwards.
3. When you're levering that big old thing in, bolt the driveshaft on pretty well, THEN try to tighten the four upper bolts. You'll need a 19mm box-end wrench to get them off, a socket won't fit the top two. I had to use two wrenches in tandem to get them loose. Do the half-shafts next. Do the diff 'ear' mount last. I know it's tempting to get that bolt back in there, but trust me, do that one last. I also had to use a jack to push it sideways about 1/2 inch. It just refused to cooperate.
I also unfortunately had to shorten the drive shaft a little. I'd have dropped the exhaust to do this but it was all rusted together. So I pulled out all the little heat shield bolts and got to the big threaded collar in an hour or two. That was a PITA, don't want to do it again.