Hi,
I went through the same dilemma.
I previously had a Leon Cupra R which was a good car that I enjoyed but I had always hankered after the S3 ( old shape ) but couldn't really afford it at the time.
Looking for new cars I decided I needed something reasonably practical for trips to the airport, shopping, holidays etc. My Wife has an S2000 so not really any use in that respect ( not sure how she ended up with the open-top RWD roadster and I ended up with the practical hatchback! ).
I still wanted a quick car and looked at various including all the usual hot hatches and also BMWs. The new Leon Cupra was quick but I didn't like the interior quality or exterior looks much.
Stuff like the 350z, RX-8, Elise were ruled out on practicallity grounds and I'm not sure I could live with the in-your-face styling of an WRX STi or Evo. My brother had an EVO VIII for a while and it was fantastic to drive but drank petrol, had to be serviced every 4.5k and encouraged any driver to instantly become a lunatic when behind the wheel ( easy recipe for a driving ban ! ).
The R32 didn't really appeal and so onto the S3. I was immediately impressed with the service at my Audi dealer, accomodating, helpful and attentive - a nice change after multiple car dealers ignoring me or being busy doing other things and not even bothering to say "I'll be with you in a minute".
So what else, well it felt fast, well made and had all the options I wanted available ( albeit at a price ! ).
It's a lot of money and probably not worth 8k more than a lot of it's hot-hatch rivals but I have no regrets. If I hadn't bought the S3 I would always be thinking I should have.
Only problem now is my front windows / doors are both creaking ( like many others have reported ! ).
Oh and I tried out the adaptive lights for the first time yesterday ( first time I've been out at night ! ) and they are excellent. You can really see them turn to give much better illumination of corner exits.
If you can still afford your house, holidays, lifestyle and the S3 without too much sacrifice then go for it! You only live once.