Larry - the LM-2S can fit the new ULT files and most other sounds (horn, bell, air, etc) without much of an issue. There are some prime mover files that are rather large that may make you reach capacity on the LM-2S once you add some of the other sounds. The 7FDL-16 Modern comes to mind. It is rather large, but like I said you can still fit nearly any other sound you would need.
The LM-3S is large enough to where storage will not be an issue for the foreseeable future. As more and more high quality sound files are released (ULT) then storage will be more important.
It is much easier to install a keep-alive on a LM-3S. The external bridge rectifier takes up extra room on the install.
Most of my locomotives run the LM-2S, simply because that's when I bought most of my modules. I have a couple LM-3S as well. Functionally there is no difference. Just the storage capacity, and the ability to run more intense programming. Currently the LM-2S can run everything the LM-3S can. I know that Tim Ring was worried that the LM-2S wouldn't be able to run the newer software when the he made all those changes a year or so ago. But he was able to get it to work in the end.
If you have access to the LM-2S then they are fine to use. Otherwise go for the LM-3S...it is more future-proof. And that's all that Tim sells now.
-Kevin