Hey guys,
I think I was in your boat! I have a DII and still do. Was looking at a 04 DII or an LR3. I went for the LR3 and have had it for a year. I still like driving my DII, but the LR3 is just a totally different experience.
I agree with your concerns about engine, cooling etc. At 50,000 miles I purchased a 3rd party extended warranty, and once the warranty terminated at 100,000, at retail Land Rover Dealer prices, I charged almost $14,000 against the warranty. Every, seal and gasket was replaced on the car, but that also was my plan. Now since all that work was done, my DII has 140,000 miles on it and it has been flawless.
If your going to do some really hard core off-roading and modify your rig then you might want to lean toward a 04 DII, but if your OK with going everywhere except for the truly hard core stuff then I would pick the LR3. On the road the LR3 makes the DII look like a VW Bus. I have had the two recalls done to my LR3 and had a problem with my right door speaker, but everthing else has been flawless....!
There is some good information on here about towing big trailers or LandRoverworld.org. I am planning on purchasing a big pop up that will top out at 5,000lbs when fully loaded. I will be pulling it all over the Sierras and Rockies not flat land towing. The DII was rated up to 7,700lbs when using low gear only, so that is really misleading. It really is rated at 5,000lbs in high gear, but there is no way I would pull anything close to that over the Sierras and Rockies in my DII. The DII would just struggle. My DII struggles when I have my family of 5 in it and the car and roof rack are loaded. The LR3 is rated to 7,700lbs in high gear and I feel very confident it will pull my 5,000 trailer. I have even done the calculations using the % reduction for every 1,000 feet you gain in altitude. Also go to rangerovers.net to get some solid advice on towing with a 03RR. Good Luck!